Commentary

Sprint's Q1 Results Indicate It's Being Heard

Sprint CEO Marcelo Claure hit five bars with investors yesterday. The company’s stock closed up 28% after a Q1 earnings presentation and conference call revealed a fourth-straight quarter of postpaid net subscriber gains — 173,000 — and a vague intent to raise prices in the not-too-distant future.

“By comparison, AT&T Inc. reported last week that it lost 180,000 wireless connections in the same period,” Anne Steele and Thomas Gryta report for the Wall Street Journal. “Postpaid churn — a measure of service cancellations — was flat with a year earlier at 1.56%. For mainstream wireless connections, churn hit its lowest level ever at 1.39%.”

It was Sprint’s “biggest one-day advance since at least July 2013 and highest price since November 2014. With those gains, the stock is up 63% this year,” reports Bloomberg’s Scott Moritz.

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Sprint also unveiled a second spot for its new campaign featuring Paul Marcarelli, the actor who used to ask if you “could hear me now” for Verizon. “The message …:  Sprint has a vastly improved network and customers can save 50% off most rate plans offered by Verizon, AT&T and T-Mobile,” according to the news release. 

But not for all that long, apparently.

“Claure’s initial efforts over the past few years to revive Sprint from near-death have involved a lot of cost cutting and a lot of bargains to attract new customers,” points out Aaron Pressman for Fortune. “The carrier’s current commercials tout rates that are 50% off the standard monthly charges at Verizon, AT&T and T-Mobile. But now that the company has stabilized and started adding customers again, the clock is ticking on the bargain prices.”

“There will be a time in the not-so-distant future in which we’re going to go back to traditional rate plans and we are doing some testing of other rate plans,” Claure said.

“While the recent promotion has gotten people looking at Sprint again, Claure's comments underscore the hefty cost the company has paid. The company posted a loss of $302 million in the period, wider than the $20 million it lost a year ago,” observes CNET’s Roger Cheng. “Still, the promotion was necessary to get people interested in Sprint, which continues to rebuild its reputation after years of poor wireless service.”

The campaign starring Marcarelli “has been one of the most successful in company history,” according to Sprint’s own reckoning. “The ad has been viewed over 8 million times on YouTube and the company became postpaid net port positive against all three national carriers for the first time in over five years.”

“’We view these as encouraging results for Sprint, though note the progress overall remains slow,’ Citigroup’s Michael Rollins said,” report the WSJ’s Steele and Gryta. 

“Jonathan Chaplin, an analyst at New Street Research LLC who has a neutral rating on Sprint’s stock, said he will now re-evaluate his assumptions about Sprint following the positive earnings report. He noted, however, that the beat comes in an unusual quarter for the wireless industry: Total churn, representing the share of customers who dropped service, was the lowest it’s ever been ahead of a new iPhone launch,” Bloomberg’s Moritz reports.

“It is difficult to know how much of the improving trend is driven by the general industry trend vs. improvements in their business relative to peers,” said Chaplin. “The results were good enough that we are questioning our thesis at this point.”

Some of the “leverage and liquidity” numbers are “misleading,” warns Madison Investment Research analyst Quinn Foley in a Seeking Alpha contribution. “Sprint needs cash more than subscribers right now. The key to the turnaround is whether the company can pay down its maturing debts ($5.1 billion in short-term obligations) and become self-funding,” he writes. His conclusion: “We are not suggesting that Sprint is the next Enron, but the company is still a long ways from becoming a healthy, self-funding company.”

In a sidebar, Claure said that Verizon’s purchase of Yahoo “is just the latest in a long history of deals by telecom firms trying to get into the content business, none of which have panned out,” Ina Fried reports for Recode. “History has proven that every single one of them has failed,” Claure told reporters. “We like when we see our [competitors] take their eye off their core business.”

As Trinculo says in The Tempest, “Misery acquaints a man with strange bedfellows.” And, for now, Sprint seems to be emerging from its misery.

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