T-Mobile US Inc. (TMUS, Financial) released its fourth-quarter 2016 results with revenue topping analyst estimates. It, however, gave a mild EBITDA (earnings before interest, taxes, depreciation and amortization) forecast on account of the rising competition in the wireless arena. In addition, the mobile operator has guided a lower subscriber gain figure for 2017 compared with what analysts had hoped.
Nevertheless, T-Mobile CEO John Legere was extremely delighted to report the customer gain and the overall financial results for the year. During the earnings release, he said, "Not only are customers flocking to T-Mobile, but we are also producing rock-solid financial results, including 11% growth in service revenues, 23% in total revenues, 31% in net income and 12% in adjusted EBITDA year over year."Â
A dive into the numbers
T-Mobile reported revenue of $10.18 billion during the fourth quarter, up more than 23% from a year ago. That compares with analyst estimates of $9.8 billion. Earnings per share came in at 45 cents, up 32% from the same period last year. Analysts projected EPS to come in around 29 cents.
During the quarter, the mobile operator registered net income of $390 million, up 31% over last year. In fourth-quarter 2015, T-Mobile recorded net income of $297 million. The national carrier’s diluted EPS improved 11 cents over last year to 45 cents in the reported quarter. The company did exceedingly well over Wall Street's earnings expectations of 30 cents per share. For fiscal 2016, T-Mobile’s net income rose 99% to $1.5 billion.
In fourth-quarter 2016, the company reported an adjusted EBITDA increase of 12% to $2.5 billion in comparison to last year. For the whole year, the company experienced adjusted EBITDA growth of 41% to $10.4 billion. As far as 2017 is concerned, T-Mobile has given an adjusted EBITDA guidance of $10.6 billion, which excludes spectrum gains. That is in line with consensus expectations of $10.9 billion.
Adding subscribers
During the fourth quarter, T-Mobile added 1.2 million postpaid subscribers, bringing the total subscriber additions to 8.2 million for the year. The quarterly subscriber additions include 933,000 phone subscribers. On the other hand, Sprint (S, Financial) added 368,000 postpaid customers, Verizon (VZ, Financial) added 167,000 subscribers and AT&T (T, Financial) lost 67,000 customers during the quarter.
T-Mobile's uncarrier approach, evident in its marketing campaign, has helped it draw subscribers in huge numbers. The company launched its marketing campaign in March 2013 and has since made massive subscriber gains at the cost of its larger rivals. The company witnessed strong revenue growth with expanding market share.
T-Mobile has been continuously showing signs of growing customer loyalty. This is evident from the 18 basis point decline in branded postpaid phone churn to 1.28% compared to a year earlier. Postpaid phone ARPU (average revenue per user) has improved 0.7% to $48.37 over last year's comparable period. This is largely responsible for the 23% revenue growth the carrier reported in the last quarter. T-Mobile’s cash flow has also strengthened, with operating cash flow for the full year rising 13% to $6.1 billion. Free cash flow more than doubled to $1.4 billion.
Looking ahead
For fiscal 2017, T-Mobile expects postpaid subscriber additions to range between 2.4 million and 3.4 million. The company’s aggressive approach to promoting unlimited data plans has become an area of concern for larger telecom players like Verizon and AT&T. The industry leaders are definitely not happy about losing subscribers or making small subscriber gains. T-Mobile expects its operating cash flow to annually rise around 15% to 18% with free cash flow improving around 45% to 48% in the next three years.
Disclosure: I do not hold any position in the stocks mentioned in this article.
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