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Sprint And The Severe Market Overreaction, Part II
- In my previous article, I discussed why Sprint is a bargain risk-reward value going forward.
- Due to the outstanding response, I felt I should elaborate on Sprint as a long position.
- Sound management decisions, combined with access to SoftBank's deep pockets for the 600 MHz auction in 2016 are all good signs for the beleaguered telecommunications provider.
- Sprint has become a lotto ticket, and we'll explain why.
- The company is under a mountain of debt and free cash flow generation remains elusive.
- A buyout may be the only way investors get bailed out, but that's not much of an investment case, in our view.
- Sprint (S) has seen its share of tough times over the past several years.
- It will take a while to right the ship, but leadership seems to be on the right track.
- There are hidden gains in the steeply discounted prices that Sprint has recently brought to the market, which may well produce an upswing to current forecasts.
- Sprint recently introduced a new plan to attract customers and give a boost to its declining postpaid subscriber base.
- The carrier has also been lagging rivals Verizon and AT&T in LTE coverage and quality, but claims that most of its network upgrade is complete.
- Our price estimate for Sprint is about $6.50, which is significantly ahead of the current market price.
- Sprint entered the wireless service price wars in August with one of the more aggressive cuts we've seen in telecom.
- If Sprint's plan doesn't work, lower operating margins and revenue will result.
- With Sprint's high debt and unprofitable business, 2015 will be a crucial year, one that could result in significant stock losses.
- Evercore predicts that Sprint will need to raise substantial cash to fund operations and prepare for the 2016 spectrum auction.
- Domestic wireless pricing wars created by Sprint caused the company to lower adjusted EBITDA forecasts by a dramatic amount for the current fiscal year.
- Softbank relationship might help with the capital raise, but it won't reduce any dilutive impact.
- Company has opted to offer cheap individual and family plans along with unlimited data plans.
- Also focusing to build strong network with enhanced capacity and coverage.
- Company has managed to reduce its subscriber loss.
- Jeff Hallock is departing, and the "Framily" plan he oversaw was cut.
- Marcelo Claure has cut jobs, cut prices, and changed the marketing strategy.
- Previously, I didn't think Sprint's low price plans were going to drive risk-adjusted returns for the company.
- The departure of the Chief Marketing Officer Jeff Hallock and the end of Framily has changed my position.
- I believe Sprint offers the best value in wireless, but the company did a terrible job of educating consumers. The goat will fix that.
Consistent Strategic Policies Remain Key In Determining Sprint's Long-Term Performance
- Competition in the industry has adversely affected the company’s top and bottom-line numbers in the recent past.
- Top-line numbers and ARPU are likely to remain pressurized due to competitive pricing strategy opted by S.
- Cost cut efforts will positively affect bottom-line numbers in the future.
- Sprint reported a dismal second quarter across the board.
- Q2 EPS was negative $.19, missing estimates by $.13.
- Management cut guidance on EBITDA.
- The stock price was climbing leading up to earnings and then fell sharply from over $6/share to under $5/share.
- I predicted that the new plans weren’t going to provide risk adjusted returns, but I was nowhere near this bearish.
Sprint's Network Strategy Key To Sustainable Growth
- Sprint has embarked on an aggressive price campaign that will stem subscriber losses in the short term, but is limited by tight margins.
- Cost cutting measures have had an impact on investor confidence but will be short-lived.
- The key to Sprint’s success will be a clear network strategy that sells its differentiated 2.5 GHz network.
- Sprint officially announces the commencement of layoffs.
- Investors should continue avoiding the stock.
- Cost cuts were anticipated amid the wireless pricing war and investors were warned that the race to the bottom isn't a good investment thesis.
Sprint Focuses On Cutting Costs And Growing Organically As New CEO Makes Moves
- Offers new cheap plans for family and individuals.
- The company offers the best deal for its iPhone 6 subscribers.
- Network improvements remain core focus for company.
Sprint Takes The Right Approach To Survive Tough Competition Across Its Industry
- The company has opted for competitive pricing to address competition.
- Recent deals will help strengthen its subscriber base, but will likely adversely affect top-line and ARPU growth.
- The company needs to ramp up network upgradation efforts across covered markets to enhance customer experience.
Sprint: Claure Off To A Good Start, But The Road To Recovery Is Long And Uncertain
- Incoming CEO Claure made a great impression in his first month on the job.
- Investors like the unlimited iPhone deal, in an attempt to aggressively grow the customer base.
- The smaller scale and leverage remain key disadvantages in an industry that's very competitive.
Mon, Nov. 3, 5:13 PM
- Along with its FQ2 results, Sprint (NYSE:S) announces it's cutting another 2K jobs, and is "targeting $1.5 billion of annualized cost reductions compared to 2014 spending levels." The carrier announced a month ago it's launching a new "workforce reduction plan;" its headcount is around 36K.
- Sprint has also slashed its full-year capex guidance by ~$1B to less than $6B; it announced a cut of similar size three months ago. The company was previously (at SoftBank's urging) spending aggressively in an attempt to narrow Verizon/AT&T's 4G coverage leads.
- Though its FQ2 numbers are generally downbeat, Sprint asserts the price cuts and promos launched since Marcelo Claure took over as CEO are bearing fruit. Postpaid phone gross adds rose Y/Y in September, the first time they did so in 2014 - the iPhone 6 launch likely helped. Sprint also claims its postpaid phone net losses fell by 60% during the month.
- S -6.5% AH. FQ2 results, guidance/details
Mon, Nov. 3, 4:30 PM
- Not counting transactions, Sprint (NYSE:S) lost 272K postpaid subs in FQ2, lowering its total base to 29.5M. The loss is bigger than FQ1's 181K, and points to further share loss to T-Mobile, Verizon, and AT&T.
- 35K prepaid subs were added, a turnaround from FQ1's 542K decline. The base stands at 14.8M. Wholesale/affiliate net adds totaled 827K, better than FQ1's 530K and growing the base to 9.7M.
- Postpaid phone net losses totaled 500K, more than offsetting 261K (lower-ARPU) tablet net adds. Other device net losses amounted to 33K. Postpaid churn was 2.18%, up from 2.05% in Q2 and 1.99% a year ago. ARPU fell to $60.58 from $62.07 in Q2 and $64.24.
- Wireless service revenue fell 5% Y/Y to $6.76B. Equipment revenue rose 46% to $1.04B. With the help of cost cuts, adjusted EBITDA margin rose 180 bps to 18.6%, driving a 14% increase in wireless adjusted EBITDA to $1.37B.
- Wireline revenue fell 19% Y/Y to $708M. The segment had just $27M in adjusted EBITDA.
- Sprint (S) has slashed its full-year adjusted EBITDA guidance to $5.8B-$5.9B from $6.7B-$6.9B. The carrier cites both postpaid phone customer losses and (amid rising promotional activity) "increased selling costs." Net debt totaled $27B at quarter's end.
- The selloff Sprint has seen since its FQ1 report appears to be limiting Sprint's post-earnings decline.
- FQ2 results, PR
Mon, Nov. 3, 4:06 PM
Sun, Nov. 2, 5:30 PM
Fri, Oct. 24, 1:16 PM
- The FCC's Incentive Auction, which will auction off a giant chunk of low-frequency (600 MHz.) spectrum historically used for TV broadcasts, is now set for early 2016 instead of mid-2015.
- The agency cites legal challenges from broadcasters, as well as the auction's complexity and "the need for all auction participants to have certainty well in advance."
- A recent FCC study (.pdf) meant to appease broadcasters estimated the auction could raise $45B. Sprint (S -0.1%) and T-Mobile (TMUS +0.1%), whose rural and in-building coverage has suffered from a dearth of low-frequency spectrum, are expected to spend aggressively.
- AT&T (T +0.1%) and Verizon (VZ +1%) are also expected to bid heavily, though the FCC plans to limit their purchases on account of their already-massive low-frequency assets. AT&T has said it plans to spend at least $9B.
- Dish (DISH +1.4%), which has a large chunk of high-frequency spectrum it's still trying to find a use for, plans to participate as well.
Tue, Oct. 14, 4:00 PM
- A month after launching a $20/month iPhone 6 leasing plan to go with an iPhone-specific $50/month unlimited voice/text/data plan, Sprint (S +2.4%) has begun offering existing customers who take up an iPhone lease a $15/month "Loyalty Service Credit."
- The promo, available until Jan. 15, lasts as long as customers have an active lease and a qualifying service plan. It cuts the effective lease rates for the iPhone 6 and 6 Plus to $5/month and $10/month, respectively. After two years, users can trade in their iPhone for a new model, buy it, keep leasing it, or return the device and terminate service.
- New CEO Marcelo Claure has unveiled several new price plans and promos since taking charge, as his company tries to halt many quarters of share losses to Verizon, AT&T, and (more recently) T-Mobile. A data promo was launched a couple weeks ago.
- The iPhone 6 promo might also be aimed at taking a bite out of Sprint's heavy iPhone purchase obligations.
Fri, Oct. 3, 4:13 PM
- Making good on remarks from new CEO Marcelo Claure, Sprint (S) has begun a new "workforce reduction plan" set to be mostly completed by the end of October. A $160M FQ2 (Sep. quarter) charge is expected.
- Sprint adds "additional material charges associated with future labor reductions may occur in future periods." The carrier has been steadily losing postpaid and prepaid share in recent quarters.
- Back in March, Sprint announced it was shutting down 55 stores and 150 service/repair centers.
Thu, Oct. 2, 2:42 AM
- The FCC is prepping its upcoming auction of frequencies known as AWS-3, scheduled to begin on Nov. 13. The auction is expected to raise at least $10B and will include airwaves previously occupied by multiple federal users.
- A total of 80 entities submitted initial applications, including Dish Network (NASDAQ:DISH) and three of the four largest U.S. wireless carriers - Verizon (NYSE:VZ), AT&T (NYSE:T) and T-Mobile (NYSE:TMUS).
- Sprint (NYSE:S) is planning sit out on the auction to save firepower for a major sale of low-frequency airwaves scheduled for next year.
Fri, Sep. 12, 10:14 AM
- Apple's (AAPL +0.1%) iPhone 6 Plus is now on backorder and not available to ship for 3-4 weeks in the U.S., judging by Apple.com shipment quotes after the device went on sale after midnight.
- The iPhone 6 Plus, the larger of the two iPhone 6 models offered, is showing a shipment time of 3-4 weeks rather than delivery on the first day of sale, Sept. 19th, for the iPhone 6.
- Also, BGR reports that iPhone 6 Plus units through AT&T (T -0.4%) will now ship in 21-28 business days, Verizon's (VZ -0.6%) models are backordered until Oct. 7 (for 64 GB) or Oct. 14 (16 GB and 128 GB), and Sprint (S +7.3%) says all of its shipments are currently delayed.
- Worldwide demand also is said to be high for the Plus, with customers in France and the U.K. saying the larger iPhone has sold out.
- AAPL is expected to announce next weekend the total initial sales results for the first three days of availability.
Fri, Sep. 12, 9:12 AM
Fri, Sep. 12, 7:46 AM
- Impressed with management changes at Sprint (NYSE:S) and seeing the stock as a long-term investment opportunity, Cowen upgrades to Outperform with $8 price target.
- In other news, Sprint plans to offer the new iPhones beginning on Sept. 19 and announces the iPhone for Life Plan, allowing customers to get a new iPhone for $20 per month for 24 months and the guarantee of a new device every two years.
- Shares +2.4% premarket after yesterday's 6.8% gain.
- Previously: Sprint on the move as Claure addresses conference
Thu, Sep. 11, 11:44 AM
- "We're implementing a culture of must-have and nice-to-have," new Sprint (S +5%) CEO Marcello Claure tells the audience (webcast) at the Goldman Communacopia Conference. "We have to focus on must-have and nice-to-have will have to go."
- Everything is on the table, he says, and "some [managers] will make it and some won't."
- The advice he got upon becoming CEO of a public company for the first time was not to change anything for the first 100 days, "but I just couldn't help myself," and Sprint overhauled its offerings on day 4.
- Previously: Claure: Sprint to slash prices, cut more jobs
Tue, Sep. 2, 6:40 AM
- SoftBank (OTCPK:SFTBY) says it will begin selling a humanoid robot named "Pepper", which is equipped with a laser sensor and 12 hours of battery life, at Sprint (NYSE:S) stores in the U.S. by next summer.
- The robot was originally targeted at families and the elderly before getting attention for business use since being unveiled in June.
- SoftBank has developed Pepper with an open platform operating system, allowing customization for use in construction, health care and entertainment industries.
Thu, Aug. 21, 1:31 PM
- Three days after launching new shared data plans (along with big short-term promotions), Sprint (S +1%) has rolled out a $60/month individual plan that provides unlimited data to go with unlimited voice/text. Like the shared data plans, Sprint's offering requires users to forgo smartphone subsidies.
- Sprint notes the individual plan is $20/month cheaper than a comparable T-Mobile (TMUS -1.1%) unlimited plan. For $60/month, T-Mobile offers individuals 3GB of data to go with unlimited voice/text. AT&T and Verizon don't offer unlimited data.
- Meanwhile, in a PR titled "T-Mobile Urges Its Customers to Rescue Sprint Customers," T-Mobile states it will give both a new customer and an existing customer unlimited data for a year, when the latter gets the former to sign up. Those already on unlimited plans will get $10/month in credit for 12 months.
- Sprint lost 181K core platform postpaid subs in Q2, while T-Mobile (aided by aggressive pricing and promotions) posted 908K branded postpaid net adds. Sprint shares are down 23% since reports emerged on Aug. 5 the carrier is abandoning its efforts to acquire T-Mobile.
Mon, Aug. 18, 7:19 PM
- After recently promising big price cuts, Sprint (NYSE:S) has launched Family Share Packs, a pricing scheme that bears a strong resemblance to AT&T and Verizon's subsidy-free shared data plans. Unlike regular Framily plans, there's no drop in per-line charges upon adding new members.
- Sprint argues its pricing sharply undercuts rivals. For example, a family sharing 20GB between four lines would pay $160/month, less than the $210/month charged by AT&T and Verizon for similar plans, and the $180/month charged by T-Mobile (NYSE:TMUS) for a plan featuring 5GB/line for four lines.
- However, Sprint fails to undercut T-Mobile among families requiring less data. With Sprint charging an extra $10/month per line to those buying a bucket smaller than 20GB, an 8GB bucket costs $170/month to a family of four, and a 4GB bucket $140/month. By contrast, a $140/month T-Mobile plan provides 12GB (3GB/line) to a family of four.
- At the same time, Sprint is following T-Mobile's lead in offering aggressive short-term promotions: Until the end of September, the carrier is waiving $15/month access line charges through 2015 for families buying plans with 20GB or larger buckets, and is also throwing in an extra 2GB/line.
Thu, Aug. 14, 6:45 PM
- With a T-Mobile deal off the table, new Sprint (S -1.9%) CEO Marcelo Claure has told employees the carrier will introduce "very disruptive" prices next week. SoftBank's Masayoshi Son suggested last week price cuts were on tap.
- Claure: "We're going to change our plans to make sure they are simple and attractive and make sure every customer in America thinks twice about signing up to a competitor ... When your network is behind, unfortunately you have to compete on value and price."
- The ex-Brightstar CEO admitted (among other things) Sprint's 4G buildout took too long, that social media chatter about the company is mostly negative, and that Sprint didn't react quickly enough to moves from rivals (read: T-Mobile).
- He promises to use Sprint's huge spectrum assets (skewed towards higher frequency bands) to improve network quality, and to have the industry's lowest cost structure. Claure admits the latter will result in new job cuts, but says he isn't sure of their scope.
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