Cost Cutting Helps Drive Sprint Back To Profitability

by Trefis Team
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Sprint (NYSE:S), the smallest of the four U.S. nationwide wireless carriers, published its Q1 fiscal 2017 earnings on Tuesday, August 1, reporting its first quarterly net profit in about three years, driven by aggressive cost cutting. While revenues grew by around 2% year-over-year to $8.16 billion, net income stood at $206 million. Below we provide some of the key takeaways from the carrier’s earnings.

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We have an $8 price estimate for Sprint, which is about 10% below the current market price.

Postpaid Phone Base Grows Amid Aggressive Discounting

Sprint offered aggressive promotions and discounts on its unlimited postpaid plans over the last quarter, helping it to more than double its postpaid phone net adds to about 88k on a sequential basis. However, the figure is still well below the 173k subscribers that it added during the same period last year, and also stands at a fraction of its rivals Verizon and T-Mobile’s net adds. For instance, Verizon managed to add a net of 358k postpaid phone users (~4x Sprint’s net adds) despite a promotion by Sprint that essentially offered a full free year of unlimited data service to defecting Verizon subscribers. This indicates that Sprint might need to keep offering promotions in order to keep its subscriber momentum going.

Sprint’s postpaid phone Average billings per user declined by about 4% year-over-year to $69.50, on account of lower insurance revenue that resulted from a change in the carrier’s device insurance program. The carrier’s service revenues fell by about 7% to $6.1 billion. It’s possible that billings could remain under pressure, with the current discounting and promotional activity.

Cost Cutting Drives Sprint Back To Profitability

With competition for postpaid phone customers intensifying, and ARPUs potentially capped in the near term amid the re-emergence of unlimited data across the industry, cost cutting will be key to driving profitability. Sprint noted that it witnessed about $370 million of combined year-over-year reductions in its cost of services and selling, general & administrative expenses during fiscal Q1. The company has cut costs by a total of $4 billion over the last nine quarters, and expects an additional $1.3 billion to $1.5 billion of year-over-year net reductions over fiscal 2017.

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