Speaking at Code Conference, Sprint (NYSE:S) CEO Marcelo Claure had a bold prediction: The carrier will have the best or second-best network in the U.S. in quality terms within the next two years.
It's an extension of Sprint's recent investments, he said, into a network that has generally lagged in comparisons with its "Big Four" U.S. competitors, particularly on speed.
Asset investments like network improvement come with heavy cash spending, though, and Sprint will burn billions of dollars in free cash flow this year. Citigroup's Michael Rollins thinks Sprint will run out of money by the 2016 broadcast incentive spectrum auction
Claure's comments come, however, after recent Tokyo meetings with his bosses at Softbank (OTCPK:SFTBY), suggesting that they'll be behind a quality push.
Alibaba (NYSE:BABA) has jumped to $89.05 after posting an FQ4 beat amid low expectations. Along with the results, the company has announced COO Daniel Zhang is its new CEO, effective May 10; current CEO Jonathan Lu will stay on board as vice chairman, joining Joseph Tsai in holding that title. Jack Ma remains executive chairman.
Revenue growth accelerated to 45% Y/Y from FQ3's 40%. Chinese marketplaces GMV rose 40% to RMB600B ($96.6B), a slowdown from FQ3's 49%. Mobile accounted for 51% of GMV, up from 42% in FQ3 and 36% in FQ2. Annual active buyers +5% Q/Q and +37% Y/Y to 350M.
A stabilizing monetization rate (revenue as a % of GMV) helped make the FQ4 beat possible: After falling 35 bps Y/Y in seasonally strong FQ3 to 2.7%, monetization rate fell just 1 bps Y/Y in FQ4 to 2.17%. Making this possible: Mobile monetization rate rose to 1.73% from 0.98% a year ago. Altogether, mobile revenue rose 352% Y/Y and was 40% of China retail marketplace revenue vs. 30% in FQ3 and 12% a year ago.
Segment performance: China retail commerce revenue +39% Y/Y to $2.11B. China wholesale +42% to $136M. International wholesale +19% to $190M. International retail +53% to $70M. Cloud computing/Web infrastructure +82% to $63M. Everything else (boosted by acquisitions) +169% to $243M. Taobao GMV +29% to $61B; Tmall GMV +62% to $35B.
Financials: Free cash flow +143% Y/Y to $914M; it trailed net income of $1.25B. R&D spend ($491M) was 17% of revenue vs. 10% a year ago; sales/marketing ($408M) was 15% of revenue vs. 11%; G&A ($400M) was 14% of revenue vs. 4%. Soaring stock compensation expenses (driven by the IPO) contributed to the spending growth. Alibaba had $19.7B in cash at the end of March.
Yahoo (NASDAQ:YHOO) has risen to $44.95 thanks to Alibaba. SoftBank (OTCPK:SFTBF) has seen the value of 797.7M-share Alibaba stake grow by over $7B.
"We already own enough of it, thank you very much," says SoftBank (OTCPK:SFTBF) Internet/media chief Nikesh Arora about Yahoo Japan (OTCPK:YAHOY). Yahoo's (NASDAQ:YHOO) recently-disclosed efforts to explore options for its 35.5% YJ stake had fueled speculation SoftBank (owns 43% of YJ) would try to buy the stake.
At the same time, Arora, formerly Google's sales chief, states SoftBank (has a portfolio of 1,300+ investments) is up for making new investments in growth companies ... at the right price. With valuations for private U.S. tech companies having soared, India, which has relatively low Web, smartphone, and e-commerce penetration rates and a new government widely seen as more business-friendly than its predecessor, has been an area of interest.
SoftBank led a $627M funding round in Indian e-commerce marketplace Snapdeal last year, and has been rumored to be weighing a major investment in low-end Indian Android OEM Micromax. It has also led a $600M round for Chinese ride-sharing platform Kuaidi Dache (recently merged with top rival Didi Dache), and invested $250M in top Southeast Asian ride-sharing platform GrabTaxi.
The Japanese conglomerate's 797.7M-share Alibaba stake (current pre-tax value of $67.5B) leaves it with plenty of fresh powder for further dealmaking.
Sprint (S +2.4%) has issued a statement to clarify that it is in discussions with Jay-Z's streaming music service Tidal -- but only to determine how to smooth the service's availability for Sprint customers.
The New York Postreported that Sprint and parent Softbank (OTCPK:SFTBY) had bought a minority stake in the subscription service that valued Tidal at $250M. Sprint is denying its investment and "confirms that, similarly, its parent company Softbank Corp. has not purchased a stake in Tidal."
At Jay-Z's big Tidal rollout event this week, the company's CIO Vania Schlogel said Tidal had been working closely with Sprint CEO Marcelo Claure.
Tidal claims to have signed up 100K subscribers since Monday's event.
Reuters reports an investor group led by SoftBank (OTCPK:SFTBF) is in talks with Indian phone OEM Micromax to buy a 20% stake in the company for $800M-$1B.
Canalys recently estimated Micromax passed Samsung to become India's top-selling smartphone vendor (Samsung begged to differ). The company's Android and feature phones have gained a strong following thanks both to their low prices and focus on the needs of emerging markets users.
Micromax was reported in January to be planning an IPO with Goldman and Morgan Stanley's help. As the owner of Sprint and Japan's #2 carrier, SoftBank could help Micromax expand into the world's two largest developed phone markets.
Employees and investors will be able to sell 337M Alibaba (NYSE:BABA) shares starting Wednesday, after the stock's first "lock-up" arrangement expires.
The termination of the 180-day period will likely weigh on Alibaba’s share price, which may come under pressure in the near-term, analysts say.
There are different lock-up periods for different shareholders, and stock held by its largest shareholders - Softbank (OTCPK:SFTBY), Yahoo (NASDAQ:YHOO) and Alibaba executives - will be frozen until the company's IPO anniversary in September.
With the market open in Tokyo, the Nikkei index has passed 19,000 for the first time since the dot-com bust, to reach a new 15-year high, following on the U.S. market's strong day. The index is up 0.7% so far, to 19,130.
Early top gainers included robotics firm Fanuc (OTCPK:FANUY), up 10.2% in local trade early, while Softbank (OTCPK:SFTBY) is up 0.5% and Fast Retailing (OTCPK:FRCOY) up 1.7%.
Big exporters are benefiting from a weaker yen: Toshiba (OTCPK:TOSYY) up 0.3%; Toyota (NYSE:TM) up 0.3% in Tokyo trade.
Pairing the world's largest satellite manufacturer with one of the world's largest cellular providers, Boeing (BA +1.5%) has taken an equity stake in SoftBank (OTCPK:SFTBY -0.6%) Satellite Planning Corporation, which will develop concepts for a satellite-based disaster response communications system for Japan.
The group will evaluate the concepts and propose them to Japan’s Ministry of Internal Affairs and Communications.
Sprint (NYSE:S) just keeps moving today (up 6.7%) alongside rumors that its network expansion may be more aggressive than announced.
Aside from Sprint's recent 48-market Spark/LTE rollout, niche Sprint-network tracker S4GRU claims there are plans for 9,000 new LTE sites -- a key organic move, after Sprint had previously expanded via different tech from Nextel and Clearwire.
"I think they will do both," says Oppenheimer's Tim Horan. "The cash needs are high."
Sprint has $3.46B in cash, against total long-term debt of $31.2B, and noted free cash flow narrowed to -$1.83B, compared to prior year's -$2.84B.
Cowen's Colby Synesael says Sprint will run out of cash by the end of March 2017, regardless of cost cutting. And Softbank (OTCPK:SFTBY) will be slow to pour in more money.
Regardless of selling its spectrum, Sprint will have trouble with more financing, Craig Moffett says: "As EBITDA comes down, leverage goes up and the company's ability to fund its cash burn and debt maturities with still more debt dries up."
SoftBank (OTCPK:SFTBY) reported a sharp drop in its profit for the October-December quarter this morning, weighed down by the continuing struggles at Sprint (NYSE:S), the U.S. mobile operator it acquired in 2013.
"Overall, SoftBank is doing well, but with Sprint...being in a tough situation, I think it will have a long battle to fight," said SoftBank's Chief Executive Masayoshi Son.
The telecommunications giant posted FQ3 net income of ¥32.3B ($272.3M), down from ¥93.8B a year earlier.
Alibaba's (NYSE:BABA) FQ3 GMV rose 49% Y/Y to RMB787B ($127B). However, its monetization rate (revenue as a % of GMV) fell 35 bps Y/Y to 2.7%, leading revenue growth to only reach 40%. By contrast, monetization rate fell just 1 bps (to 2.30%) in FQ2.
A major culprit: Mobile grew to 42% of GMV from 36% in FQ2 and 20% a year ago. And the mobile monetization rate (1.96% vs. 1.87% in FQ2 and 1.12% a year ago) remains well below the total rate. Mobile was 30% of revenue vs. 42% of GMV.
A bright spot: EBITDA rose 34% Y/Y to $2.43B, better than expectations for 24% growth and driving the EPS beat. Heavy spending led EBITDA margin to slip to 58% from 60% a year ago. With stock compensation spend (IPO-driven) rising to 16% of revenue from 4%, and new business initiatives growing, operating expenses rose to 33% of revenue from 30%, and gross margin fell to 71% from 78%.
China commerce revenue +32% to $3.6B (a slowdown from FQ2's 47%); international commerce (AliExpress-driven) +39% to $284M; cloud computing/infrastructure +85% to $58M; everything else (boosted by acquisitions) +266% to $309M.
Taobao GMV (driven by smaller merchants) +43% to $80B; Tmall GMV (driven by larger merchants) +60% to $47B. Annual active buyers rose to 334M from 307M in FQ2 and 231M a year ago.
Yahoo (NASDAQ:YHOO) is following Alibaba lower, and is now down 9% since posting Q4 results and announcing its spinoff plans.
A month after investing $250M in Southeast Asian ride-sharing platform GrabTaxi, SoftBank (OTCPK:SFTBF) has led a $600M funding round for Travice, owner of major Chinese ride-sharing provider Kuaidi Dache. Alibaba (NYSE:BABA) and Tiger Global also took part in the round.
The investment comes after Baidu took a stake in Uber, which is fresh off raising funding at a $41B+ post-money valuation. For now, Uber has a much smaller Chinese presence than Kuaidi, which operates in 300+ cities. Top Kuaidi rival Didi Dache raised $700M in December from Tencent and others.
SoftBank (OTCPK:SFTBF) has invested $250M in GrabTaxi, a mobile taxi-booking platform that has become Uber's biggest rival in Southeast Asia.
GrabTaxi, based out of Malaysia, operates in six countries. The startup claims 500K monthly active users, 2.5M app downloads, and a network of 60K drivers. For now, it isn't looking to expand beyond Southeast Asia.
The investment comes as Uber reportedly looks to raise at least $1B at a whopping $40B valuation. It also follows SoftBank's hiring of former Google chief business officer Nikesh Arora to be its Internet/media chief.
Since Arora's hiring, SoftBank has acquired Korean TV show/movie site DramaFever, invested $627M in Indian e-commerce marketplace Snapdeal, and led a $210M funding round for Indian Uber rival Ola.
"We now model [Sprint] having to raise an additional $3B of capital over the next 3+ years to both continue investing in its network and fighting to attract subs," predicts Evercore's Jonathan Schildkraut, reiterating a Sell on Sprint (NYSE:S). "We believe this financing will come as debt given [Sprint's] low stock price and the likelihood that SoftBank (OTCPK:SFTBF) would not want to dilute its holdings."
Schildkraut assumes Sprint will have calendar Q4 free cash flow of -$1.3B, leading to full-year cash burn of $2.95B. He adds Sprint's participation in the FCC's huge 2016 incentive auction (widely considered necessary due to Sprint's relatively weak low-band spectrum portfolio) "could result in the need to raise even more capital.'
As it is, Sprint had $27B in net debt at the end of September (compares with current equity of $20.3B). Aside from price cuts and 4G investments, postpaid subscriber losses (272K were lost in calendar Q3) have been contributing to cash burn.