Last week, stocks of Sprint Corp (S, Financial) lost almost 5% of their value after the company announced its results for the last quarter. The stock price movement in the last 90 days is in some contrast to its smaller rival, T-Mobile US (TMUS, Financial), which is fast closing in on Sprint’s number three spot in the mobile space, as also when compared with bigger rivals Verizon Communications Inc. (VZ, Financial) and AT&T Inc. (T, Financial), all of which have performed better than Sprint. Quarterly results that disappointed the markets and the growing spectre of being pushed down from the number three spot by T-Mobile, are these reasons enough to sell the stock?
A look at the numbers
In money terms, Sprint’s loss went up to $224 million compared to $151 million in the same quarter last year and revenue declined by about 7% to $8.28 billion. In subscriber terms, the company added a total of 1.2 million customers in the last quarter, an improvement from the addition of 967,000 subscribers in the quarter before last and a big turnaround from a loss of 383,000 subscribers in the same quarter a year ago. At the end of the last quarter, Sprint had 57.1 million subscribers, maintaining its spot in the third place over T-Mobile which had 56.8 million subscribers at the time.
Breaking down the subscribers
Sprint has added subscribers overall but it is losing its high-value branded phone post-paid customers, losing 201,000 of them in the last quarter. Where it gained was in the lower-value categories of tablet subscribers and pay-as-you-go customers. So, while it appears to have done much better than earlier in terms of absolute numbers alone, the quality of the new customers is not high. That also goes to explain the widened loss and a decline in revenue for Sprint, despite having added subscribers to its network. However, the silver lining here is that the loss of post-paid customers has slowed down for the company, coming at 1.84% for the last quarter, down from 2.32%.
Finances beyond results
Sprint is bleeding cash and reported a negative free cash flow of $914 million and its net debt adds up to $29.6 billion at the end of the last quarter. This money is being spent on offering subscribers cheaper deals than rivals to attract them to its fold, and to also to open more retail stores. According to some analysts, if the company keeps spending at its current rate, it will run out cash completely sometime next year. However, CEO Marcelo Claure feels quite secure in this regard, saying if the company needs “more cash we can always sell spectrum, issue cash or go to the bond markets.” Other than that, the company also has a financially very sound owner in Japan’s SoftBank.
Conclusion
CEO Marcelo Claure has been around for less than a year, and while things are nowhere near good, they seem to be better in some ways since he has taken charge. The loss of post-paid subscribers has been slowed and the company has also added to its net customer base. With an improving network, it is reasonable to expect that this trend will continue. However, Sprint is not alone in its efforts to woo customers and smaller rival T-Mobile is already snapping at its heels. At the moment, it is best to adopt a wait-and-watch policy, and should the company show another improving quarter, it could be worth investing in.
