Sprint’s Postpaid Adds In Focus As Competition And Promotions Mount

Sprint (NYSE:S), the smallest of the four nationwide U.S. wireless carriers, is expected to publish its fiscal Q1 results on August 1, reporting on a quarter that saw relatively intense competitive activity in the U.S. wireless market. While we expect Sprint’s net losses to narrow year-over-year, amid operating cost reductions and revenue growth from its recent postpaid subscriber additions, there is a possibility that postpaid phone net additions will be somewhat muted this quarter. Below we take a look at some of the key factors to watch as the carrier publishes earnings.

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We have a $8 price estimate for Sprint, which is slightly below the current market price.

Postpaid Phone Business Could Fend Off Competition With Aggressive Promotions

While Sprint largely turned around its postpaid phone business, posting average net additions of ~300k over the last three quarters of FY’16, its net adds slowed down considerably for the quarter ended March 2017, coming in at just ~42k. It is possible that the company will face further pressure during Q1, with competitive activity mounting. This will mark the first full quarter since the AT&T and Verizon unveiled unlimited plans, after a hiatus of close to five years, potentially reducing the need for customers to defect to smaller rivals such as Sprint. That said, Sprint’s unlimited plans remain the cheapest in the market, and the carrier has been offering extremely aggressive promotions to bring new subscribers on board. For instance, in June, Sprint offered Verizon subscribers who switched to its network a full free year of unlimited voice and data service for up to five lines, with practically no contractual commitments. While plans such as these could hurt Sprint’s revenue growth and ARPU in the medium-term, they should help in terms of subscriber acquisitions (related:Is Sprint Going Too Far To Win Over Subscribers With Free Service?).

Prepaid Business Could See Further Recovery 

The prepaid phone segment has been a source of growth in the U.S. wireless market in recent years and Sprint has generally underperformed its peers, as it de-emphasized the pay-as-you-go segment, letting go of many lower-value customers. However, the business turned a corner during fiscal Q4 (quarter ended March 2017), adding around 180k prepaid subscribers, compared to a loss of roughly 264k subscribers in the prior year period. The growth was driven by Sprint’s premium prepaid brands – the Boost brand (which has ARPU of close to $40) saw net subscriber adds during Q1, while the Virgin brand saw lower subscriber losses. We will be closely watching the progress of the carrier’s prepaid brands this quarter.

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