A Mixed Bag for Leap Wireless - Analyst Blog


Yesterday after market close, Leap Wireless International Inc. ( LEAP ) declared mixed financial results for the fourth quarter of 2011. During 2011, the company restructured its business models through which it has given maximum emphasis to the high ARPU (average revenue per user) generating smartphone customers, while shedding less profitable wireless broadband subscribers as these users generally place huge load on its network.

However, the major concern for Leap Wireless is the intensely growing competition in the U.S. low-cost prepaid wireless phone market. Traditionally, the company competes with MetroPCS Communications Inc. ( PCS ), Boost Mobile, the prepaid subsidiary of Sprint Nextel Corp. ( S ), and Tracfone, the prepaid subsidiary of America Movil S.A.B. ( AMX ). Recently, the two largest nationwide carriers, viz., Verizon Wireless and AT&T Inc. ( T ) entered the wireless prepaid phone market after the growth rate of lucrative postpaid wireless market slowed. Verizon Wireless is a joint venture between Verizon Communications Inc. ( VZ ) and Vodafone Group plc. ( VOD ).

Quarterly total revenue was $767.4 million, up 14.6% year over year, but significantly below the Zacks Consensus Estimate of $804 million. Service revenue was $729.5 million, up 14.6% year over year. Equipment revenue was nearly $37.9 million, down 46.9% year over year.

Net loss, in the fourth quarter of 2011, was $84.4 million or a loss of $1.10 per share compared with a net loss of $249.4 million or $3.28 per share in the prior-year quarter. Quarterly EPS of a loss of $1.10 was however better than the Zacks Consensus Estimate of a loss of $1.13. Quarterly cash cost per user (primarily indicating carrier subsidy for new smartphone) was $22.46, up 3.2% year over year.

Quarterly gross margin was 40.1% compared with 41.7% in the prior-year quarter. In the fourth quarter of 2011, operating loss was $3.5 million compared with $27 million in the prior-year quarter. Quarterly adjusted OIBDA was $135.1 million, up 26.3% year over year. In the reported quarter, adjusted OIBDA was 19% of the service revenue compared with 17% in the year-ago quarter.

During 2011, Leap Wireless generated $387.5 million of cash from operations compared with $312.3 million in 2010. Free cash flow, in 2011, was a negative $54.2 million compared with a negative $86.6 million in 2010. At the end of 2011, Leap Wireless had over $751.1 million of cash & marketable securities compared with $419.2 million at the end of 2010. Total debt, at the end of 2011, was over $3,220.7 million compared with $2,840.6 million, at the end of 2010. At the end of 2011, debt-to-capitalization ratio was 0.84 compared with 0.76 at the end of 2010.

Subscriber Statistics

During the fourth quarter of 2011, Leap Wireless added around 178,889 net customers compared with 107,443 customers in the prior-year quarter. In the last quarter, the company gained a total of 209,000 wireless voice customers, but lost 30,000 wireless broadband subscribers. Total subscriber base, at the end of 2011, was 5,934,013, an improvement of 7.5% year over year. Quarterly consolidated churn rate was 3.9% compared with 4% in the year-ago quarter. Voice churn rate was 3.7% compared with 3.6% in the year-ago quarter. ARPU in the reported quarter was $42.09, up 10.4% year over year. Quarterly cost per gross addition was $238, up 13.9% year over year.  


We maintain our long-term Neutral recommendation on Leap Wireless. Currently, the company has a short-term Zacks #3 Rank (Hold).

AMER MOVIL-ADR ( AMX ): Free Stock Analysis Report
LEAP WIRELESS ( LEAP ): Free Stock Analysis Report

METROPCS COMMUN ( PCS ): Free Stock Analysis Report
SPRINT NEXTEL ( S ): Free Stock Analysis Report
AT&T INC ( T ): Free Stock Analysis Report
VODAFONE GP PLC (VOD): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: AMX , LEAP , PCS , S , T



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