Shares of Sprint jumped more than 5% this morning after it reported 368,000 postpaid phone net additions during a particularly competitive fourth quarter. But analysts are at odds over just how healthy the nation’s fourth-largest carrier truly is.
Sprint’s net operating revenues came in at $8.5 billion, marking more than 5% year-over-year growth, and its net loss of $479 million was a marked improvement over the $836 million net loss it recorded a year ago. The postpaid phone net additions were Sprint’s highest in four years, marking the ninth consecutive quarter of year-over-year growth, but its 405,000 overall postpaid adds was shy of analysts’ estimates by 2.4% and was down more than 19% year over year, MoffettNathanson analysts noted.
“Sprint is turning the corner,” CEO Marcelo Claure said in a press release. “Even with all the aggressive promotional offers from our competitors, we were still able to add more postpaid phone customers than both Verizon and AT&T while continuing to grow revenues, take costs out of the business, and improve the network.”
The carrier also raised the low end of its previous guidance for adjusted EBITDA and operating income for fiscal year 2016, and it lowered its expected capex spending to a range of $2 billion to $2.3 billion, down from “less than $3 billion.”
“Solid fiscal Q3 results that largely beat our estimates across the board,” Jennifer Fritzsche of Wells Fargo Securities wrote in a note to investors this morning. “Subscriber results were solid despite the mote competitive quarter, and EBITDA outperformance continued with executing on cost takeout initiatives.”
Other key metrics from Sprint’s quarterly earnings report include:
Subscribers: While Sprint’s postpaid phone net adds were up—if slightly lower than analysts’ estimates—the carrier lost 501,000 prepaid net customers, continuing Sprint’s struggle to compete in a space that heated up over the last two years. Postpaid phone churn increased by four basis points to 1.57%, and total postpaid churn was 1.67%.
“Total Sprint branded phone subscriber growth (that is, across postpaid and prepaid) remains an industry-worst loss of 133,000 in the calendar fourth quarter even after the write-off of 1.2 million prepaid subscribers,” wrote MoffettNathanson analysts, “and they remain sharply in the red.”
Financials: Sprint’s net loss of 12 cents per share was worse than analysts’ estimates of 9 cents per share, CNBC reported, and postpaid ARPU of $57.12 was down 5.3% year over year, also missing analysts’ forecasts. Perhaps the most striking figure in Sprint’s quarterly earnings report, though, is the $1.6 billion in cost reductions the company has achieved so far this fiscal year.
Network: Sprint once again touted its progress in closing the network gap with Verizon and other rivals, pointing to reports from multiple third-party network tests. And it said its 2.5 GHz spectrum and new technologies such as carrier aggregation, massive MIMO and HPUE are providing opportunities to continue to advance its network.
Summary: Sprint’s momentum in subscriber growth is undeniable, and the carrier has become a clear threat to other major service providers. But questions remain about its financial health, MoffettNathanson said.
“Today’s weak results are a reminder that much work remains to be done before Sprint can truly be viewed as having sustainably achieved a turnaround,” according to MoffettNathanson analysts. “Absent the accounting distortions of handset leasing, their EBITDA is still below where it was in 2013, when the stock traded as low as $2 per share. … Sprint’s turnaround continues to face substantial challenges: churn has seemingly lost momentum and is now beginning to tick higher, and service revenues continue to decline. Capital spending continues to fall.”