Leap's lowered outlook gooses Wall Street

Leap Wireless posted a widening net loss amid growing revenues, but the carrier's lowered outlook for the rest of the year--which it blamed on "challenges in the competitive environment," among other factors--appeared to spook investors, who sent the company's shares down more than 20 percent to around $17.77 in trading after the news.

Leap's struggles mirror those of rival MetroPCS, which reported similar dire statistics for the quarter. Metro's stock declined a whopping 30 percent following its earnings announcement.

Leap "delivered solid financial performance in the second quarter and for the first half of the year," boasted Doug Hutcheson, Leap's president and CEO. However, he cautioned: "The rapid transformations taking place within the wireless industry have not changed our positive long-term view, but will have an impact on our performance for the balance of 2009, and the outlook for the company has been revised appropriately."

Specifically, Leap lowered its expected net subscriber additions for 2009 to 1.5 million (from "greater than 1.5 million"), and lowered its operating income before depreciation and amortization to $500 million (from between $560 million and $640 million). Leap blamed its lowered expectations on "recently emerging challenges in the competitive environment, actions the company is taking to increase the number of customers using its Cricket services, and the evolving challenges our customers face in the economic environment."

The language is a clear nod to the current, global economic slowdown as well as the white-hot clashing among the wireless market's unlimited prepaid carriers, namely Sprint Nextel's Boost Mobile, MetroPCS and TracFone Wireless. Indeed, the price warring among these players has lowered the cost of unlimited, prepaid service plans from around $50 per month to around $40 per month in just a few weeks.

"While Leap's second quarter report was not as bad as MetroPCS it had similar characteristics of lower subscriber growth and falling ARPU, which should concern investors about the market opportunity for unlimited prepaid service offerings," wrote Walter Piecyk of Pali Research.

As for Leap's second quarter:

Financials: The carrier's net loss grew to $61.2 million in the second quarter, more than doubling the $24.6 million loss Leap posted in the same period of the prior year. Leap's total revenues for the quarter clocked in at $597.4 million, up from the $474.9 million it posted in the same quarter a year ago.

Subscriber additions: Leap netted 203,000 new customers, an increase of 19 percent from the second quarter of 2008, but down from the 493,000 net additions it had in the first quarter. The flat-rate carrier said the figure included around 44,000 net "broadband additions," or users of its wireless data service. Leap ended the quarter with around 4.54 million total customers.

Churn: Leap's churn widened from 3.8 percent in the second quarter of 2008 to 4.4 percent in its most recent quarter due to "the impacts of the current economic and competitive environment," the carrier said.

ARPU: Second quarter average revenue per user for Leap dropped a little more than 7 percent year-over-year to $40.73, down from $43.97 in the year-ago quarter, which the carrier blamed on "increased customer acceptance of the company's Cricket Broadband and Cricket PAYGo services, which are generally priced lower than the company's most popular Cricket Wireless service plans."

For more:
- see Leap's earnings release [1]