T-Mobile Posts Solid Q3 Results As Postpaid Phone Base Soars

T-Mobile (NYSE:TMUS), the third largest U.S. wireless carrier, posted a stronger than expected set of third quarter earnings, driven by its fast growing postpaid and prepaid phone subscriber base. Below, we provide the key takeaways from the carrier’s earnings release.

Trefis has a $49 price estimate for T-Mobile, which is slightly below the current market price.

See our complete analysis of T-Mobile U.S.

• T-Mobile added a solid 851k branded postpaid phone net connections in the July to September period, marking an increase of roughly 1% year over year. Key trends driving the growth include branded prepaid customer migrations to postpaid plans as well as lower churn (1.32%, down 14 bps). The carrier has also been benefiting from weakness at larger rivals Verizon and AT&T, who have both been losing postpaid phone customers due to feature phone attrition. Sprint, the smallest nationwide carrier added about 347k postpaid subscribers.

• The firm raised its branded postpaid net adds guidance for 2016 to 3.7 to 3.9 million from 3.4 to 3.8 million. However, based on the firm’s performance year to date, this would imply net adds of just 800k to 1 million for Q4, which is well below last year’s 1.3 million in Q4 net adds. That said, T-Mobile has a track record of beating expectations and it is possible that the firm will surprise in Q4.

• T-Mobile launched its One Unlimited plan during Q3 and the firm notes that uptake has been strong, accounting for 80% of sales to new customers, with existing customers also migrating to the plan. We believe that this is a net positive for T-Mobile, as it gives the firm an opportunity to boost ARPUs which remain the lowest in the industry. (related: T-Mobile’s New Unlimited Plan Could Be Good For Its Bottom Line) Moreover, the plan will not negatively impact T-Mobile’s network, as it only offers reduced resolution video streaming (HD video is typically the biggest bandwidth hog), which the firm has been offering for free anyway on most plans for more than a year.

• T-Mobile’s prepaid business also performed well, driven by promotional activity surrounding its MetroPCS brand and growth in new markets. Prepaid net adds stood at 684k, marking an increase of about 15% year over year. Prepaid ARPU has also been on the uptick, rising by about 1.5% year-over-year to $38, on account of higher data attach rates.

• While T-Mobile reported that its adjusted EBITDA grew from about $1.9 billion in Q3’15 to $2.63 billion in Q3’16, a bulk of the increase came from a $199 million spectrum gain as well as a year-over-year increase in the the uptake for leased handsets, for which costs are recognized under the depreciation header.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research