T-Mobile’s (TMUS, Financial) first full quarter after the company started its unlimited plans shocked Wall Street, to say the least. The company blew way past all market expectations as its record-breaking quarter added more pain to the industry’s top players, Verizon (VZ, Financial) and AT&T (T, Financial).
The main reason for the above-average results was that T-Mobile experienced a huge surge in customer addition. T-Mobile reported 1.3 million net adds, way more than the 807,000 Wall Street was expecting. T-Mobile has now hit more than 1 million net adds for 17 quarters in a row as the company continues to expand its market share in the U.S. wireless market.
T-Mobile posted second-quarter earnings per share of 67 cents on the back of $10.21 billion in revenues while the market was expecting earnings per share of 38 cents and revenue of $9.81 billion.
T-Mobile’s unlimited data plans seem to be well received as customers flocked in droves to the company during the second quarter. The problem for its competitors is T-Mobile is not just pulling in more customers; its retention rate is also getting better by the day. Postpaid churn dropped from 1.26% during the second quarter of 2016 to 1.10% this year.
Source: T-Mobile 2016 Annual Report
As Verizon and AT&T keep losing customers, their revenue growth has taken a huge hit while T-Mobile has gone the opposite direction, adding more customers and watching its revenue grow at a healthy rate that’s atypical of the industry. T-Mobile’s annual revenue grew from $24.42 billion in 2013 to $37.242 billion in 2016.
"T-Mobile saw data volumes growing about 40% year over year, Technology Chief Neville Ray told analysts on a conference call last quarter. The advent of faster internet speeds, coming with 5G-compatible phone chips, is likely to accelerate the competition for wireless customers. The 'super cycle'Â of iPhone 8 customers expected by analysts could also pose an unprecedented challenge for carriers." –”‹ CNBC
The strong performance during the second quarter has allowed T-Mobile to revise its guidance range upward, and the company now expects branded postpaid net customer additions in the range of 3.0 million to 3.6 million instead of the previously expected 2.8 million to 3.5 million. The U.S. wireless market is an extremely mature one, and the population is not exploding. T-Mobile is talking customers away from its competitors, and the company expects that trend to continue in the short term.
Adding more than a million customers for 17 quarters is no small achievement; moreover, considering the highly mature state of the wireless Industry, it is clear that T-Mobile has plenty of momentum on its side, and the current trend looks good to continue for some more time.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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