Sprint (NYSE:S) primarily provides services on a postpaid and prepaid payment basis to retail subscribers, which includes the sale of wireless services that utilize the Sprint network. It also provides wireline services to other communications companies and targeted business customers. In this analysis, we break down the key drivers of the company’s revenues.
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What Are Sprint’s Key Business Segments?
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1. Services (expected to contribute 68% of fiscal 2020 (year ending March 2020) revenue): Revenue is generated from postpaid and prepaid subscribers depending on the type of service utilized by them, which includes fixed monthly recurring charges, variable usage charges, and miscellaneous fees such as activation fees and roaming.
2. Equipment Sales (17% of 2020 revenues): Devices are sold to customers through installment billing and subsidy programs.
3. Equipment Rentals (15% of 2020 revenues) : Qualified subscribers can lease a device for a contractual period of time. At the end of the lease term, subscribers have the option to return the device, continue leasing the device, or purchase the device.
What Are The Alternatives?
Wireless Carriers: AT&T, Verizon Wireless, and T-Mobile, and regional carriers such as U.S. Cellular and C-Spire.
Technology Companies: Microsoft, Google, Apple.
Cable Companies: Comcast’s Xfinity Mobile and Charter’s Spectrum Mobile.
What Is The Basis of Competition?
Competition is based on wireless plans that include voice calls, spectrum resources, wireless content distribution, and broadband services.
Sprint’s Total Revenue has grown slightly from $33.3 billion in FY 2017 to almost $33.6 billion in FY 2019 but is expected to decline by the same percentage to $33.2 billion in 2 years
(1) Revenue from Service Channel could decline about $1 billion in the next two years, with its share of Total Revenue expected to be about 66% by 2021
- Overall, Services revenue declined from $25.4 billion in fiscal 2017 to $22.9 billion in fiscal 2019, driven by lower retail postpaid and prepaid revenues.
- We expect revenue to decline by ~1 billion in the next two years, to about $21.8 billion in fiscal 2021, driven by a fall in average revenue per user (ARPU) for postpaid and prepaid subscribers.
- Services sales contributed 68% of total revenue in fiscal 2019. Though this share is expected to go down to 66% in fiscal 2021, it is still expected to contribute a large part of the company’s revenue.
(1.1) Postpaid Revenues Could Decline 6% In Next Two Years On the Back of Growing Competition
(1.2) Prepaid Revenues Could Remain Flat Over the Next Two Years
- A lower ARPU will be driven by an increase in subscribers on lower price plans and promotional activities.
- Mounting competition, particularly with equipment promotions by competitors, could hurt the subscriber’s growth. However, we expect postpaid and prepaid subscriber growth to stabilize with the recent commercial 5G launch announcement.
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