MetroPCS Communications Inc.
(
PCS
) reported lower-than-expected first quarter 2012 results. Earnings
per share of 6 cents missed the Zacks Consensus Estimate of 17
cents and registered a steep 60% fall from 15 cents in the year-ago
quarter on higher subsidies to customers for handset upgrades.
Total revenue climbed 7% year over year to $1,277 million in the
first quarter, but failed to match our expectation of $1,295
million. Adjusted EBITDA dropped 8% year over year to $262 million.
Operating expenses increased 12.3% year over year to $1,178.3
million.
Operational Metrics
Average revenue per user was $40.56 in the reported quarter
compared to $40.42 in the year-ago quarter mainly on strong demand
for "Wireless for All" services and fourth-generation (4G)
long-term evolution (LTE) rate plans.
Cost per user (CPU) grew 16% year over year to $22.87 due to
higher expenses on customer retention, costs associated with 4G LTE
network upgrade and roaming expenses related to Metro USA.
Additionally, cost on handset upgrades also contributed
substantially ($7.13 per user) to the rise in CPU.
Churn (customer switch) was 3.1% in the first quarter,
reflecting an improvement from 3.7% in the fourth quarter of 2011
but flat with the first quarter of 2011. The sequential improvement
was primarily attributable to continued investment in network
upgrades, deeper focus on customer retention and favorable seasonal
impacts.
Subscriber Statistics
MetroPCS added 131,654 subscribers during the quarter to reach a
total of 9.5 million customers (up 7% year over year). Consolidated
penetration of the covered population was 9.3% compared with 9.0%
in the year-ago quarter. The year-over-year growth was primarily
driven by increased demand of
Google
's (
GOOG
) Android based smartphone.
Liquidity
The company ended the first quarter with cash and cash
equivalents of $1,886.2 million compared with $1,321.6 million at
the end of the year-ago quarter. Long-term debt remained at $4.726
billion compared with $4.711 billion.
Guidance
For fiscal 2012, MetroPCS maintained its prior expectation of
capital expenditures in the range of $0.9 billion to $1.0
billion.
Our Analysis
Despite the growing demand in the low-cost prepaid space,
MetroPCS, one of the leading players in the prepaid market faced a
setback in its first quarter earnings. We believe that entry of
Telecom Czars like
Sprint Nextel Corp.
(
S
) into the prepaid service segment is showing its impact on the
smaller carriers like MetroPCS.
Given the stiff competition, these small carriers are
increasingly depending on their smartphone sales. Therefore, more
focus is drawn on cell phones upgraded by subsidies to lure
existing customers. This is now turning into a bane for carries
like MetroPCS. At the same time, network upgrades like spectrum
acquisitions for accommodating smartphone facilities are capital
intensive, and create a serious concern for the company's
financial.
However, we may bank upon MetroPCS' success in its Wireless for
All program. Further, the no-contract wireless service is rapidly
gaining ground against traditional post-paid plans, propelling
higher voice and data traffic.
We are currently maintaining our long-term Neutral rating on
MetroPCS with a Zacks #3 Rank (Hold).
GOOGLE INC-CL A (
GOOG
): Free Stock Analysis Report
METROPCS COMMUN (
PCS
): Free Stock Analysis Report
SPRINT NEXTEL (
S
): Free Stock Analysis Report
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