T-Mobile's Loss Wider than Estimate - Analyst Blog

T-Mobile US, Inc. TMUS reported first-quarter 2014 loss per share of 19 cents, wider than Zacks Consensus Estimate of loss per share of 9 cents. However, the loss tapered a bit from the year-ago quarter's loss per share of 20 cents.

Net loss of the company was $154 million compared with $106 million in the year-ago quarter.

Combined adjusted EBITDA (including adjusted EBITDA of MetroPCS) was $1.1 billion, down from $1.5 billion in the year-ago quarter. The company's adjusted EBITDA margin was 20%, reflecting a 900 basis points (bps) year over year deterioration. The decline was mainly due to lower service revenues, higher customer acquisition expenses owing to growing handset sales and increased promotional activities.

Total revenue increased 47% year over year to $6,875 million but missed the Zacks Consensus Estimate of $6,924 million.

Service revenues were $5.3 billion, up 33.3% year over year given the inclusion of MetroPCS results for the full quarter.

Equipment revenues for the quarter were $1.4 billion against $606 million in the year-ago quarter. The growth was mainly attributable to rising handset sales driven by Apple Inc. AAPL iPhones and Samsung Galaxy handsets. Total smartphones sold during the quarter were 6.9 million, representing 92% of total devises sold.

Operational Metrics

In the first quarter, branded post-paid average revenue per user or (ARPU) was $50.01 compared with $54.07 in the year-ago quarter. Prepaid ARPU was $36.09 versus $35.87 in the year-ago quarter.  Post-paid churn rate was 1.5%, down from 1.9% in the year-ago quarter. Prepaid churn also improved to 4.3% from 7.0% in the first quarter of 2013.

Subscriber Statistics

At the end of the reported quarter, the company had nearly 49.1 million customers. T-Mobile US added 1.8 million branded customers bringing its base to 39.2 million. At the end of the quarter, the company had a wholesale customer base of 9.9 million, with 603,000 net customer additions.

Liquidity

T-MobileUSended the first quarter with cash and cash equivalents (inclusive of short-term investment) of $5,471 million compared with $5,891 million as of Dec 31, 2013. Capital expenditures were $947 million compared to $1.2 billion in the first quarter of 2013.

Our Analysis

We believe that T-Mobile US remains well established to solidify its position in the U.S. market with the acquisition of wireless service provider MetroPCS. The synergies arising from this acquisition and improved data revenue will propel growth going forward. In addition, higher smartphone penetration will drive subscriber addition, fending competition from tier 1 carriers like  AT&T, Inc. T and Verizon Communications Inc. VZ.

T-MobileUShas a Zacks Rank #3 (Hold).