Sprint Q4 Preview: Losses Likely To Narrow, But How Will The Postpaid Business Fare?

by Trefis Team
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Sprint (NYSE:S), the smallest of the four U.S. nationwide carriers, is expected to publish its Q4’16 results on May 3, reporting on a quarter that saw quite a lot of competitive activity in the U.S. wireless market. We expect Sprint’s net losses to narrow sequentially, amid operating cost reductions and strong postpaid phone additions in recent quarters. Below, we take a look at some of the key factors we will be watching when Sprint publishes earnings.

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We have a $7.50 price estimate for Sprint, which is 15% below the current market price.

How Will The Postpaid Phone Business Fare? 

Sprint’s postpaid phone subscriber growth has been strong in recent quarters ( it added 368k postpaid phone subscribers over the holidays), driven by its competitive service pricing and improving network quality. However, competition mounted over Q4 FY’16, as T-Mobile began offering all-in pricing for its latest One plans, effectively reducing its service pricing, while larger players Verizon and AT&T reintroduced their unlimited data plans for mainstream customers after a gap of roughly five years. While Sprint’s plans remain the most competitive in terms of pricing, the moves by other carriers could nonetheless put pressure on Sprint’s net adds.

Prepaid Business May Continue To Lose Subscribers

Sprint’s prepaid business has been underperforming, with 501k losses in Q3 FY’16, amid strong competition from  budget prepaid brands such as AT&T’s Cricket Wireless and T-Mobile’s MetroPCS. That said, Sprint is focusing on improving the profitability of its prepaid business, bolstering premium brands such as Boost and Virgin Mobile, while reducing exposure to lower-value brands. Sprint noted that the Boost brand posted positive net adds for the month of December, and we will be watching for further updates on how the carrier’s strategy is panning out.

Interest Expenses In Focus

Sprint’s debt load stood at $37.3 billion as of December 31, 2016, and the carrier’s high interest costs have been a key factor inhibiting its return to net profitability. As of Q3’17, interest costs stood at $619 million (over 7% of revenues). While Sprint hasn’t been able to meaningfully reduce its debt, it has been looking to cut its interest expenses. For instance, late last year the carrier raised about $3.5 billion of spectrum-backed senior secured notes at rates less than half the carrier’s effective interest rate.

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