3rd UPDATE: MetroPCS, Leap Wireless See Subscriber Growth
May 07 2009 - 5:25PM
Dow Jones News
MetroPCS Communications Inc. (PCS) and Leap Wireless Inc. (LEAP)
each reported strong subscriber growth as a result of expansion
into several key new markets.
MetroPCS and Leap both offer flat-rate pre-paid pricing with
regional restrictions, and sit in the sweet spot in the industry as
more customers are trading down to cheaper plans and avoiding
contracts.
"There's a kind of sea change in consumers looking for greater
value," Chief Executive Roger Linquist told Dow Jones
Newswires.
But the growth has attracted a lot of players, intensifying the
competition in this segment.
That's reflected in lower average revenue per user from both
companies, suggesting they had to cut prices and offer promotions
to remain contention. Cost cuts, however, helped it to bank higher
profits.
MetroPCS shares, however, fell 8% to $16.95. The stock has
rallied more than 75% over the past three months, and was up 11%
over the past week.
"It's profit-taking," said Romeo Reyes, an analyst at Jefferies
& Co. "Overall, the numbers were great."
MetroPCS posted earnings of $44 million, or 12 cents a share, up
from $39.5 million, or 11 cents a share, a year earlier. There were
5.2% more shares outstanding in the most recent period. The latest
results included about $382,000 in write-downs related to hedging;
the prior year had $13.9 million.
Revenue increased 20% to $795.3 million on a 29% jump in
services revenue and 34% drop in equipment revenue.
Analysts polled by Thomson Reuters expected earnings of 9 cents
a share on revenue of $818 million.
MetroPCS said last month that subscribership rose 51% from a
year earlier, marking a third-consecutive quarter of growth and
another record increase. Net subscriber additions rose to 684,000
to bring its base to 6 million.
Average revenue per user fell 5%, the company said Thursday. It
also said in April that churn, or turnover rate, rose one
percentage point to 5%.
MetroPCS backed its estimate for full-year consolidated adjusted
earnings before interest, taxes, depreciation and amortization of
$900 million to $1.1 billion, as well as subscriber additions of
1.4 million to 1.7 million.
Leap, meanwhile, also saw subscriber growth, but it posted a
wider first-quarter loss because it expanded into new markets such
as Chicago and Philadelphia.
The carrier posted a loss of $47.4 million, or 74 cents a share,
compared with a prior-year loss of $16.9 million, or 28 cents a
share. Revenue increased 25% to $587 million.
Analysts polled by Thomson Reuters expected a per-share loss of
69 cents on revenue of $595 million.
Leap added 493,000 net new customers, putting its total base at
4.3 million.
Average revenue per user fell 6.2% to $42.21, while the turnover
rate fell to 3.3% from 3.6%.
Leap rose 0.3% to $35.07 in after-hours trading.
Leap and MetroPCS aggressively marketed their services ahead of
their launches. MetroPCS blanketed billboards and airwaves in New
York and Boston with advertisements ahead of its rollout.
"We painted the town purple," Linquist said. "The rollout is
going well."
Threatening their prospects are aggressive offers from rival
pre-paid players. Sprint Nextel Corp.'s (S) Boost service offers a
flat-rate, all-inclusive $50 plan, and added 764,000 new customers
in the first quarter.
Virgin Mobile USA Inc. (VM) has recently cut its plan to $50 a
month. National player T-Mobile USA, owned by Deutsche Telekom AG
(DT), has also delved into the pre-paid segment.
MetroPCS CEO Linquist, however, said he didn't see much of an
impact in areas where MetroPCS operates. He added that Boost still
has questions about its economics, since its parent has a much
higher cost structure than MetroPCS.
There was little progress on the much-speculated upon merger
between MetroPCS and Leap, with Linquist saying the two haven't met
on that subject.
"It's kind of in our rearview mirrror," he said.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020;
roger.cheng@dowjones.com