October 18, 2016
Sprint’s subscriber growth “is clearly gaining operational momentum,” Jennifer Fritzsche of Wells Fargo Securities wrote this morning, and is likely to surpass analysts’ estimates for net postpaid adds in the third quarter.
But analysts continue to question the carrier’s lack of investment in its network.
Sprint filed preliminary quarterly results with the SEC this morning, and the company offered investors some good news: Total net operating revenues came in at $8.25 billion, up 3 percent year-over-year, and wireless net operating revenues were up 5 percent to $7.85 billion. Sprint said it saw 344,000 net postpaid additions during the quarter and 347,000 net postpaid phone adds, well outpacing the 275,000 predicted by Wells Fargo.
“This is a HUGE deal because wireless revenue showed annual growth only one time in the last eight reported quarters,” Fritzsche wrote in a research note to investors. “Sprint is clearly gaining operational momentum in terms of subscriber growth. Recall, we were the highest on the Street in terms of postpaid net adds … and the company still beat us by almost 75,000. In our view, Sprint’s value message and improved network experience is beginning to resonate with customers.”
Fritzsche reiterated Wells Fargo’s rating of outperform for Sprint shares. Analysts at New Street Research echoed Fritzsche’s sentiments:
“Overall it appears that the positive momentum at Sprint is being sustained,” New Street analysts wrote. “Expect the stock to perform well today.”
Analysts generally agree that Sprint has effectively addressed concerns about liquidity – for the short term, at least – and should be able to meet its substantial debt obligations through next year. And the carrier has made solid strides in growing its base of postpaid subscribers in recent quarters.
The preliminary figures weren’t entirely positive, however. Sprint plans to post a net loss of 427,000 prepaid users during the quarter, significantly more than Wells Fargo’s estimate of 250,000. And New Street Research noted that Sprint didn’t offer data “on service revenue turnaround that some have been looking for.”
And analysts once again pointed to Sprint’s surprisingly low capex, which continues to raise eyebrows. “Relative to our expectations, more than half the beat was driven by lower capex.”
The nation’s fourth-largest mobile operator attracted attention in May when it lowered its capex guidance for the rest of the year to $3 billion, down significantly from analysts’ estimates in the range of $4.5 billion. And it spent $376 million on capex in the second quarter of 2016, which marked a dramatic decrease from the $1.6 billion it spent during the same period in 2015.
Sprint’s network capex during the latest quarter came in at $470 million, far lower than New Street’s estimate of $763 million. Sprint has long maintained that its strategy of deploying small cells enables it to increase coverage and boost capacity much more affordably than traditional macrocell buildouts, but analysts continue to question whether that strategy is viable over the long haul.
“Furthermore, postpaid competition is set to increase as cable enters the wireless market next year, and capex appears to be unsustainably low (network quality may deteriorate as Sprint ramps subscribers while starving the network of investment),” New Street analysts wrote. “We continue to believe the company’s best option at this point is to attempt a deal with T-Mobile, which would create a significant amount of synergies and would give it the scale necessary to compete vs. the incumbents and cable.”