Flat-rate carrier MetroPCS (NASDAQ:PCS) reported weaker subscriber growth and earnings that missed analysts' estimates in the third quarter, but also said it is seeing continued demand for its smartphones running Google's (NASDAQ:GOOG) Android platform.
Click here for key slides from MetroPCS' third quarter earnings presentation.
While MetroPCS blamed the troubles on the troubled economy and "seasonality," analysts said the carrier's sluggish results are largely due to its sluggish 2G network and its expensive LTE phones.
MetroPCS "has to manage a difficult balance over the next couple of quarters: Subs are clamoring for smartphones and PCS has a brand new, empty LTE network; however, LTE handset prices are still too high to appeal to their target customer base," wrote Credit Suisse analyst Jonathan Chaplin in a research note. "At the same time, smartphone subs will be disappointed with network performance on the 2G network (possibly contributing to the higher churn this quarter)."
MetroPCS has said that LTE phones will become more affordable at the end of next year.
Here is a breakdown of MetroPCS' key quarterly metrics:
Smartphones: Since introducing its first Android smartphone in December of 2010, MetroPCS said that smartphone penetration has grown to around 30 percent of its subscriber base. The company said that 46 percent of all sales are now Android phones. "Looking towards the second half of 2012, we believe additional new Android smartphones will be introduced with lower cost and more functionality, and we believe we can continue to drive profitable growth by migrating our customers onto our 4G LTE network," MetroPCS CEO Roger Linquist said in a statement.
Subscribers: MetroPCS reported total net subscriber additions of 69,000, weaker than the 223,000 net adds in the year-ago period and down from 199,000 net additions in the second quarter. The subscriber additions actually beat analysts' estimates of 53,500, according to six analysts surveyed by Bloomberg. "This was a seasonally weak quarter," Wells Fargo analyst Jennifer Fritzsche told Bloomberg. "Christmas bonus season could have a very positive impact on growth," said Fritzsche, referring to the fourth quarter.
Financials: MetroPCS posted net income of $69 million, down 10 percent from $77 million in the year-ago quarter and lower than analysts' estimates, according to Thomson Reuters I/B/E/S. The company's revenue came in at $1.2 billion, 18 percent higher than $1.02 billion in the year-ago period. Service revenue spiked 20 percent to $1.13 billion, up from $942 million in the third quarter of 2010.
Churn: Churn rose from 3.8 percent to 4.5 percent in the quarter. MetroPCS said the increase in churn was primarily driven by an increase in gross additions, adjusted for false churn, in the first half of 2011 over the first half of 2010. The company also said churn jumped due to continued economic pressures on its subscribers as well as increased data demands on its CDMA network driven by Android penetration. MetroPCS said in September that it is deploying EV-DO data service in a little less than 20 percent of its cell sites to augment its CDMA 1X data service that exists in all of its markets.
Chaplin questioned how much of an impact economic uncertainty had on MetroPCS' results, considering other carriers did not cite that as a factor this quarter. "We haven't seen it anywhere else," he told Reuters.
ARPU: Average revenue per user climbed $1.11 to $40.80 for the third quarter. MetroPCS said the increase in ARPU was primarily driven by to continued demand for its Wireless for All and LTE plans.
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