Investors are pulling away from T-Mobile US (TMUS, Financial) despite the telecom giant's robust Q1 performance, which included a top and bottom-line beat. TMUS achieved a record quarter for postpaid net customer additions, with 1.3 million new customers. It also outperformed rivals Verizon (VZ, Financial) and AT&T (T, Financial) in postpaid phone net adds, with 495,000 additions. In contrast, VZ lost 289,000 postpaid phone customers, while AT&T added 324,000.
Why the Sell-Off? Analysts had anticipated higher postpaid phone net adds for TMUS in Q1. With a YTD appreciation of around +18%, TMUS's stock was under pressure not to disappoint.
- Despite the strong Q1 report, the miss on net phone adds has dampened investor enthusiasm. TMUS reported an EPS of $2.58, marking its fifth consecutive quarter exceeding estimates by at least $0.10. Revenue rose 6.6% year-over-year to $20.89 billion, surpassing VZ and AT&T by at least 4 percentage points. Service revenues increased by 5%, with postpaid service revenues growing by 8%.
- Broadband net adds were strong at 424,000, marking the 13th consecutive quarter TMUS led the broadband industry in customer growth. TMUS's new pricing structure resonated well with customers, resulting in its highest-ever ARPU growth in broadband for Q1.
- Looking forward, TMUS is optimistic. The company projects postpaid phone ARPU growth of at least +1.5%, up from +1.1% in FY24, and adjusted EBITDA of $33.2-33.7 billion, an increase of $100 million from its prior forecast. TMUS is also rolling out T-Satellite, a Starlink-based mobile phone network, with a launch price of $10 per month for one year, irrespective of the customer's current mobile phone carrier.
While TMUS's Q1 report was strong compared to its competitors, the shortfall in expected net phone adds triggered a sell-off. Concerns also arise from a possible pull-forward effect, as management noted potential price hikes related to tariffs might have led customers to upgrade phones earlier in the year. If true, future quarterly results could disappoint. Consequently, the market is opting to lock in profits now, wary of how tariffs, prices, and demand will unfold in the coming months. This has also put pressure on VZ and AT&T shares.
