T-Mobile posted yet another impressive quarter in terms of both subscribers and the bottom line, leading some onlookers to wonder whether the carrier should participate in any M&A activity in the near future.
The nation’s No. 3 wireless network operator reported 1.3 million total net additions for the quarter, marking 17 straight quarters of more than 1 million new net customers, and it saw 817,000 total branded postpaid net additions. T-Mobile also posted a record low branded postpaid phone churn of 1.1%, down 17 bps year over year and 8 bps sequentially.
Total revenue came in at $10.21 billion, beating Wells Fargo Securities’ estimate of $9.9 billion and outpacing the $9.29 billion it posted during the same period last year.
T-Mobile increased its guidance range for branded postpaid net customers additions for 2017 to a range of 3 million to 3.6 million, up from its previous forecast range of 2.8 million to 3.5 million. It also ratcheted up its adjusted EBITDA target to a range of $10.5 billion to $10.9 billion, up from $10.4 billion to $10.8 billion.
“This was a competitive quarter. It was the first full quarter with all the unlimited plans in the market; it was also a quarter in which one desperate company gave away service for free,” T-Mobile CEO John Legere said during the company’s earnings call, referring to a recent Sprint promotion. “And yes, we even had a new entrant from cable.”
Shares of T-Mobile jumped roughly 3% in after-hours trading following the company’s earnings release.
Here’s a close look at some other key first-quarter metrics from T-Mobile:
Subscribers: T-Mobile posted 786,000 branded postpaid phone net additions, solidly beating both the 602,000 additions predicted by Wells Fargo analysts and the 596,000 predicted by a consensus of other Wall Street analysts. Prepaid net additions sank to 94,000, marking a steep decline from the 476,000 T-Mobile added a year ago, but Legere attributed the drop-off to a prepaid market that has become extremely competitive over the last two years. “MetroPCS continues to win customers at a healthy pace, but we also made it clear that we chose not to respond to irrational offers from some of our competitors,” he said. Legere also noted that T-Mobile’s prepaid ARPU was a record $38.65 during the quarter, up 2.1% year over year.
Financials: Earnings more than doubled to $581 million from $225 million a year earlier, as MarketWatch noted, as earnings per share jumped to 67 cents a share from 25 cents a share. MarketWatch said analysts surveyed by FactSet had predicted earnings of 38 cents a share. Service revenues of $7.4 billion were up 8% year over year and marking a record high, although they fell short of the $7.54 billion forecast by Wells Fargo analysts. Net income came in at $581 million, up 158% year over year.
Network: T-Mobile’s network now covers 315 million U.S. POPs and the company aims to target 321 million potential customers by the end of 2017. It said its deployment of 700 MHz spectrum is “essentially complete,” having gone live in 575 markets and covering 271 million POPs, and it plans to begin deploying services on the 600 MHz airwaves it won during the FCC’s recent incentive auction in the next several weeks. The carrier plans to open a total of 3,000 new T-Mobile and MetroPCS stores by the end of the year, aligning with its ongoing strategy of expanding its network and then growing its retail footprint to approach consumers in those new markets.
Summary: T-Mobile’s second quarter surpassed already-high expectations by most metrics despite ever-increasing competitiveness in a market where growth has all but stalled. The carrier has long been at the center of rumors of potential tie-ups in the wireless industry, of course, and CFO Braxton Carter threw a little gas on that fire two months ago when he suggested T-Mobile might be interested in a tie-up not only with Sprint but also with multiple companies including cable operators.
But T-Mobile’s ability to maintain its momentum in a brutal wireless market may prompt the carrier to bide its time during what could be a flurry of M&A activity on the horizon, Craig Moffett of MoffettNathanson wrote.
“Despite a generally poor operating environment in wireless, T-Mobile continues to fire on all cylinders. In the second quarter, they beat on virtually every growth metric and on most financial results,” Moffett wrote in a note to investors. “No, we wouldn’t suggest that a merger (with Sprint) would be a bad idea. But we would question whether now is the right time. With a host of questions about relative valuations, postmerger leverage, and regulatory prospects, one has to wonder whether T-Mobile and its parent Deutsche Telekom wouldn’t be better served to wait until relative valuations are more appropriately aligned with reality.”