Why T-Mobile Is Up

T-Mobile US Inc TMUS reported strong financial results in the fourth quarter of 2014. Both the top and the bottom lines surpassed the respective Zacks Consensus Estimate.

This Zacks Rank #3 (Hold) company competes with Verizon Communications Inc. VZ, AT&T Inc. T and Sprint Corp. S in the highly price-sensitive U.S. wireless market. However, T-Mobile's "Un-Carrier" service which was launched in 2013 to offer a series of price concessions like no annual service contract, equipment installment facility, free international data roaming, to name a few, helped the company to gain a large number of customers.   

GAAP net income in the fourth-quarter was $101 million or 12 cents per share compared with a net loss of $20 million or a loss of 3 cents per share in the year-ago quarter. Quarterly earnings per share of 12 cents comfortably outpaced the Zacks Consensus Estimate of 9 cents.

Total revenue increased 19.4% year over year to $8,154 million in the fourth quarter, surpassing the Zacks Consensus Estimate of $7,908 million. The year-over-year upside was aided by higher branded, services and equipment sales revenues on the back of a large customer base.

Quarterly operating income was $433 million, up a whopping 211.5% year over year. Operating margin was 5.3% against 2% in the prior-year quarter. Adjusted EBITDA was $1,751 million, up 41.3% year over year. Adjusted EBITDA margin was 21.5% compared with 18.1% in the year-ago quarter.

The company sold 8 million smartphones in the fourth quarter, representing 93% of total phone sales. In Jan 2015, the FCC (Federal Communications Commission) announced that T-Mobile was the winning bidder of AWS-3 spectrum licenses covering approximately 97 million people for an aggregate bid price of $1.8 billion. The company expects to receive the AWS-3 spectrum licenses, subject to regulatory approval, in the second quarter of 2015.

Cash Flow

In fiscal 2014, T-Mobile generated $4,146 million of cash from operations compared with $3,545 million in fiscal 2013. Free cash flow in fiscal 2014 was a negative $171 million against a negative $480 million in fiscal 2013. 

Liquidity

At the end of 2014, T-Mobile had $5,315 million of cash and $16,360 million of debt outstanding against $5,891 million of cash and $14,589 million of outstanding debt at year-end 2013.

Subscriber Statistics and Other Metrics

As of Dec 31, 2014, the total customer base of T-Mobile was 55.018 million, up 17.9% year over year. Branded postpaid phone customer was 25.844 million, up 18.6%. Branded postpaid mobile broadband customer was 1.341 million, up a significant 167.1%. Branded prepaid customer totaled 16.316 million, up 8.3%. M2M customer was 4.421 million, up 22.7%. MVNO customer was 7.096 million, up 24.3%.

In the reported quarter, T-Mobile added a net 1.276 branded postpaid customers, 0.266 branded prepaid customers and 0.586 wholesale customers. Total net customer addition was 2.128 million, signifying the seventh successive quarters of over one million net customer additions. Quarterly branded postpaid churn was 1.73% against 1.63% in the year-ago quarter and branded prepaid churn was 5.39% against 5.10% in the prior-year quarter.

Quarterly, branded postpaid average revenue per account (ARPA) was $109.87, remained flat year over year. Branded postpaid average billing per account (ABPA) was $143.79 against $127.34 in the year-ago quarter. Branded postpaid phone average revenue per user (ARPU) was $48.26 compared with $51.13 in the prior-year quarter. Branded prepaid ARPU was $37.51 compared with $35.84 in the prior-year quarter. Branded postpaid ABPU was $61.80 against $58.78 in the year-ago quarter.