Shares of Sprint Communications (S, Financial) have dropped 42% in the last one year, as the wireless communications retailer was finding it difficult to survive. However, through various turnaround efforts and strategies, the company has been able to overcome some of the problems. Thus, its shares have risen 16% since the beginning of this year.
The company reported its third quarter numbers, which were ahead of the Street’s estimates. Both the top line and the bottom line came as a relief to the investors, resulting in a further increase in its share price.
Onto the numbers
Revenue for the quarter dropped 1.8% to $8.97 billion, over last year. Although the top line registered a decline, it was ahead of the Street’s estimate of $8.57 billion. The revenue slipped mainly because the average phone bill of post-paid customers slipped to $58.63 from $63.44 in the previous year. However, the pre-paid ARPU rose to $27.61 from $27.34 last year.
Nonetheless, the company gained 967,000 wireless connections during the quarter, much higher than 682,000 last year. Out of the total additions, 41,000 were pay-as-you-go users, 572,000 were wholesale customers and 30,000 were the new monthly subscribers. Thus, total connections at the end of the period stood at 55.9 million.
Sprint was able to add connections by providing discounts and a lot of promotions. It provided various offers, such as half-price offers for customers who switched from other carriers. This attracted more customers. Also, it offered subscribers a contract buyout credit worth $350 in the form of a prepaid Visa gift card. These measures helped subscriber numbers grow.
But its peers, AT&T (T, Financial) and Verizon (VZ, Financial) added 1.9 million and 2.1 million customers, respectively, in the last quarter. Thus, Sprint needs to work hard in order to overcome competition from the two rivals.
Further insights
The gross margin of the company narrowed to 15%, mainly due to the increased promotions and discounts. This was still higher than the estimate of 12%. Also, loss of the company widened to $0.60 per share, from a loss of $0.26 per share last year. But the bottom line was affected by one time impairment charges. Excluding one-time charges, the company reported a loss of $0.18 per share, better than the estimate of a loss of $0.24 per share.
Thus, the company has formulated a turnaround plan, which should be helpful in the future. It plans to improve its network quality and make its customer service better. However, this will take some time. Also, it will continue with its promotions in the coming months, since it has resulted in more customers. Thus, discounts and cut your bill in half promotions should continue to add subscribers.
Furthermore, the company plans to expand its retail presence by acquiring RadioShack Corp’s 2,000 stores. The addition of the electronic chain’s stores will not only help in expanding its footprint, but will also help in expanding Sprint’s distribution.
In addition, the wireless communications company plans to add 500 stores this year, with 50 to 60 stores addition each month. The retail store network is being expanded in order to meet the growing demand at its stores.
My take
Sprint is indeed facing stiff competition from its peers. But its effective strategies, such as the discounts and offers, are yielding fruit and are expected to change things around. Also, the company is expanding its retail presence through acquisition as well as new store openings. However, one of the main areas of focus for the company should be its bottom line. In order to do that, it needs to cut down its costs. Overall, investors should keep away from this company for now. Wait until it starts posting profits.
