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Summary

  • Sprint about to detail disruptive pricing.
  • Company needs a rebound after failed T-Mobile bid.
  • Time is critical with Apple's iPhone 6 about to launch.
  • With shares near yearly lows, perfect time for speculation.

Back in May, I discussed how Sprint (NYSE:S) needed to close a deal with T-Mobile (NYSE:TMUS) as soon as possible. Sprint had reported a quarter where it lost subs and had a decline in its revenue per user number. The company was losing money, debt remained high, and T-Mobile seemed to be getting very aggressive in the space. With a deal now off the table, Sprint is reportedly announcing very disruptive pricing this week. Today, I'll detail why the company needs this hail mary, and how investors could play this.

The company's second quarter report showed more subscriber and average revenue losses. Total retail postpaid average revenue per user fell by more than $1 sequentially and was down nearly $2 from the year ago period. Investors have not been pleased recently, with shares hitting new 52-week lows, and CEO Dan Hesse being replaced. Shares that were nearly at $10 a few months ago are now well below $6.00.

As I detailed in my original article, the company's "Framily" plan did not seem competitive. As a result, the company will look to change things up in a big way this week. Here's what the company has been testing recently, according to the Wall Street Journal.

According to The Journal: "In Chicago, Sprint tested a plan that offered unlimited talk, text and data for $50 a month -- $30 less than a similar plan from T-Mobile and something market leaders Verizon Communications and AT&T don't offer ... In Portland, Ore., it tested a family-focused plan that offered lines for four smartphones and 20 gigabytes of data to share for $160, the same price as plans offered by AT&T and Verizon, but with twice as much data. ... And in Buffalo, N.Y., the carrier has offered its "Framily" plan at a $10 discount per line, so any group of five users could pay $25 a month apiece for unlimited talk, text and 1 gigabyte of data."

Price reductions are the first priority of new CEO Marcelo Claure, who also wants to improve the network and reduce operational expenses. T-Mobile has been very aggressive with its pricing recently, and one can only think that Verizon (NYSE:VZ) and AT&T (NYSE:T) will soon follow. Unfortunately for Sprint (and its investors), it seems as if Sprint will continue to bleed share to the other three names as it operates independently. That's why a T-Mobile deal was so important, because a Sprint/T-Mobile combo could have been an interesting challenger to the two industry giants. Now, many believe Sprint will end up in fourth place, which is not a great place to be.

In my opinion, this is a critical time for Sprint to announce disruptive pricing, because the company needs a solid plan in place for the launch of Apple's (NASDAQ:AAPL) iPhone 6. With anticipation continuing to build as we approach the launch of Apple's larger screen devices, Sprint needs to show consumers that it is in the game. Sprint needs to slow its reduction in subscribers, and it would be nice if the company could actually increase its user base. Having the best plan in place for the highly awaited iPhone 6 launch could be exactly what Sprint needs to rebound.

With Sprint shares near 52-week lows, this seems like the perfect opportunity for investors willing to speculate. Short interest in the name is at a 2014 high, meaning good news could result in a bit of a short squeeze. With Sprint having a low float thanks to the Softbank deal, the float isn't 3 billion like it was in the past. I believe that the next six months will be critical for Sprint. Either the company will get through this key iPhone 6 launch and holiday period on the rebound, or things will fall apart. That being said, I would only gamble on Sprint using options. For instance, the February 2015 $6 calls could be a good example of a trade. If Sprint gets its act together and rallies back towards double digits, you make a huge profit. However, if the company fails to impress and the stock drops another 40%, your dollar losses would be limited.

Source: Sprint: It's Now Or Never

Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.