The cut-rate prepaid cellular market, though representing fully a third of the growth in wireless in the U.S., is not always a comfortable place to be, as evinced by the results today from Metro PCS (PCS), the discount pre-paid cellular operator whose stock was cut by a third after disappointing Q2 earnings.
In a note to clients, Thomas Weisel analyst James Breen cut his rating on the stock to “Market Weight” from “Overweight” and cut his price target to $10 from $21. Ouch.
Breen says he thought Metro PCS could distinguish itself in the pre-paid market with more up-to-date handsets and more prolific distribution channels. However, after a 5.8% churn rate in the quarter, 14% higher than he expected, it’s clear others are taking share from Metro, he writes.
Who? Sprint’s (S) Boost Mobile, for one, which added 993,000 subscribers in the second quarter, compared to Metro PCS’s 206,000 net additions, America Movil’s (AMX) Tracfone unit, in conjunction with Verizon Communications (VZ), and Leap Wireless (LEAP).
Breen’s numbers are going down for this year, to $3.44 billion in revenue, $891.8 million in adjusted Ebitda, and 32 cents per share profit. That’s compared to a prior estimate of $3.67 billin, $962 million, and $.47. You’ll note Breen doesn’t even give the company the benefit of its reiterated forecast for $900 million to $1.1 billion in adjusted Ebitda.