Virgin Mobile USA prepares for IPO

MVNO Virgin Mobile filed for an IPO late yesterday with an as yet unknown estimated value. The announcement marks the culmination of years of rumors about a Virgin Mobile USA IPO and it follows a successful $2.2 billion IPO from its U.K. counterpart last summer. Virgin Mobile USA is a joint venture founded in July 2002 by the Virgin Group and Sprint Nextel, both of which will retain a still unspecified stake in the company after the offering. While most of the other details concerning the proposed IPO have yet to be ironed out, the SEC S-1 filing has revealed a plethora of information about the MVNO.

Subscribers: Virgin Mobile USA hit one million customers in November 2003, within eighteen months of its national launch. As of December 31, 2006, the company served approximately 4.57 million customers, which it estimates represented approximately a 15 percent share of the pay-as-you-go market and a 19 percent increase over the 3.84 million customers it served as of December 31, 2005. As of March 31, 2007, it served approximately 4.88 million customers. Virgin Mobile's subscriber base accounts for the majority of Sprint's wholesale customers. At the end of 2006, Sprint said it had 6.4 million wholesale subscribers. Virgin said it had 4.6 million as of late December.

ARPU: Total revenues for the MVNO totaled $1.1 billion at the end of last year as ARPU has declined from $24.24 in 2004, to $22.54 in 2005 and $21.48 at the end of last year. Non-voice services made up about 17 percent of service revenues in 2006.

Profitability: Even though 2006 sales totaled $1.1 billion, the company said it has never turned a profit. It lost $36 million last year, down from a 2005 loss of nearly $103 million. Virgin Mobile uses Sprint's wireless network and incurred costs of about $225 million for the service in 2006.

Risk Factors: Virgin Mobile has the usual rundown of risk factors for its impending IPO, like unexpected executive departures and seasonal subscriber adds, but a few stick out: Since the MVNO runs on Sprint's CDMA network, its financial performance could be affected if Sprint performs poorly. Virgin Mobile's agreement with Sprint includes one for its PCS network that expires in 2027, but its agreement with Sprint does not include future data technologies like WiMAX yet. Without these agreements, the MVNO's data offerings will remain limited. Virgin also notes that their prepaid business model might not be a strong one in the years ahead as competition from all sides of the telecom business puts pressure on the margins. Finally, Virgin Mobile has a considerable amount of debt: $553.3 million, which will change following the public offering. -Brian

For more on Virgin Mobile's impending IPO:
- see this SEC filing

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