What’s The Outlook For Sprint?

Sprint (NYSE:S), the smallest of the four wireless carriers, has had a relatively mixed couple of months. The carrier’s merger talks with T-Mobile (NASDAQ:TMUS) fell through late last year (although there are reports that the companies have rekindled negotiations) and the company also faces more intense competition from larger rivals, who have seen significant traction for their unlimited data plans. However, Sprint has been making significant progress with its cost reduction program, while continuing its bolster its subscriber base. In this note, we take a look at the near-term outlook for Sprint’s business.

We have created an interactive dashboard analysis that outlines our expectations for Sprint over FY 2018 and FY 2019 (Fiscal years end in March). You can modify the key drivers to arrive at your own revenue and EPS estimates for Sprint.

Sprint Is Getting More Realistic With Postpaid Pricing

Sprint’s postpaid business has been steadily adding customers over ten straight quarters, driven by discounting and some improvement in network performance. However, the net adds metric is slowing down (184k postpaid phone subscribers in the December quarter, down from the 368k adds in the year-ago period)  due to higher competition from AT&T and Verizon, who have accelerated their subscriber adds in recent quarters. Moreover, Sprint has also marginally increased pricing on some plans, indicating that further price hikes could be in the offing. It’s possible that churn could rise in the near-term, as some subscribers on the carriers “Unlimited freedom” and “50% off” deals from two years ago see their promos come to an end, with prices going up by as much as 90%.

Prepaid And Wholesale Business

Sprint is looking to shore up its prepaid business by focusing on higher value brands such as Boost and Virgin, while de-emphasizing lower value plans.  While the carrier’s reported prepaid subscriber base has trended lower as it no longer reports Lifeline plans (targeted at low-income consumers) due to recent regulatory changes, we expect the metric to improve in the near-term. Moreover, prepaid ARPUs should also see some improvement, due to higher data attach rates and the focus on premium offerings. Sprint’s wholesale business could also see customer growth over the long-term, driven by growth in the connected device space, although this is likely to put pressure on its ARPUs.

Returning To Sustained Profitability 

Sprint remains in a relatively difficult financial position. The company’s debt load stands at close to $38 billion, with roughly half the amount coming due over the next four years, and with interest costs standing at roughly $600 million per quarter. While Sprint has been resorting to mortgaging assets to raise liquidity and lower its interest costs, the best way for the company to pare down debt over the long run is to return to sustained profitability. While Sprint is taking steps to improve its postpaid and prepaid ARPUs, cost cutting will also prove important for the company to return to sustained profitability. The carrier plans to reduce its SG&A and cost of services expenses by $1.5 billion for the fiscal year ended March 31, 2018.

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