Virgin Mobile's growing troubles

 

Virgin Mobile's growing troubles 

I'm looking forward to Virgin Group CEO Richard Branson's keynote at next month's CTIA Wireless 2008 show in Las Vegas. I hope he will address concerns about Virgin Mobile USA's lagging stock price and less-than-stellar financial performance. It's got to be a subject near to his heart. Branson reportedly lost $250 million in Virgin Mobile USA since the firm went public last October.

The company, which announced its earnings earlier this week, was chastised by financial analysts when it reported a net loss of $14.7 million during the fourth quarter last year and reported fewer net new customers adds than expected. Virgin Mobile USA CEO Dan Schulman blamed "economic conditions" for the loss and warned that the conditions will continue to affect the consumer market and wireless industry during 2008. He also said that the company had fewer customer additions in fourth quarter because Virgin decided not to reduce its low-end handset pricing to match that of its competitors.

Schulman said that he was "frustrated" with the company's stock price, which dropped 41 percent yesterday and closed at $2.46 per share. "We understand the unexpected challenges of the economy have affected market sentiment. We think we have the right business proposition to weather this."

But financial analysts aren't so confident in Virgin's proposition. In a research note Walter Piecyk of Pali Capital said that he expects Virgin's subscriber base to decline by 300,000 subscribers in 2008 and he said that the loss will cause the company's CPGA to rise while its ARPU will decline. In addition, he said that he expects Virgin to face increased competition in the prepaid arena from large operators.

Virgin Mobile has always been considered the one success story in the troubled MVNO space, so it's difficult to watch the firm's troubles grow. But it's not really surprising. Although Virgin always touted its key market as young adults and teens, the credit challenged consumers have always made up a good portion of its base. Those subscribers are the most vulnerable to challenging economic conditions and that's probably why Virgin is experiencing the impact of the downtrodden economy more than traditional operators. "In any market, prepaid is difficult," says John Byrne, analyst with Technology Business Research. "But Virgin has always tried to maintain its reputation as being edgy and cool. That's tough to maintain." -Sue

P.S.  FierceWireless will once again host a networking party at CTIA.  Come join us on April 1 at Rain in The Palms. Party starts at 7 p.m.  RSVP here.