Sprint Nextel Corporation (NYSE:S), the third largest US national carrier, reported its first quarter 2013 earnings on April 24, crushing analyst estimates by posting a narrower than expected loss. The telecom player gave a pleasant surprise by recording a loss of $643 million, which comes to $0.21 per share against analysts’ forecast of a $0.33 loss per share. Despite the fact that the company lost 560,000 contract subscribers due to the Sprint Nextel Corporation (NYSE:S) shutdown process, it kept its operating costs in control to meet revenue expectations while lowering losses. The rising popularity of smartphones worked in favor of the company as it saw gains in revenue per subscriber.
Let’s take a look at some essential figures to assess what’s there for investors.
Digging deep into the numbers
The Kansas carrier, targeted by potential suitors Softbank Corp (TYO:9984) and DISH Network Corp (NASDAQ:DISH), booked revenue of $8.79 billion, which was slightly up compared to the prior year’s top-line of $8.73 billion. However, this was fairly ahead of analyst expectations of $8.71 billion as they predicted the top-line to plunge 0.25% over last year’s figure. Revenue gains for the carrier were flat as growth in Sprint’s business was offset by its Sprint Nextel Corporation (NYSE:S) shutdown process, expected to complete by the end of the second quarter.
Though the overall revenue growth was marginal, it is still impressive as Nextel customers continued to dump the platform. Sprint Nextel Corporation (NYSE:S) lost as many as 771,000 Nextel customers. However, it was successful in converting 46% of these postpaid Nextel subscribers and bringing them onto Sprint’s platform. Also, the company’s service revenue rose 9% to $7.1 billion, reflecting the improved performance of Sprint’s core operation. Postpaid customer turnover also experienced slight improvement from 2% to 1.84%, which suggests increased subscriber loyalty. Prepaid churn was also at its best at 3.26%. Moreover, the carrier’s narrowing loss of $643 million, down from $1.3 billion in the last quarter in light of Hurricane Sandy, is good news for investors.
What about its smartphone sales and its relation with Apple Inc. (NASDAQ:AAPL)?
Smartphone sales formed 86% of total handsets sold during the quarter. The company sold around 5 million smartphones, out of which 1.5 million were Apple Inc. (NASDAQ:AAPL)’s iPhone. This is a bit disappointing, particularly after last quarter when the company sold a record high 2.2 million units. Undoubtedly Sprint Nextel Corporation (NYSE:S) is way behind its bigger rivals AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ), which sold 4.8 million and 4 million iPhones respectively. But what needs to be noted is that 43% of Sprint’s iPhone buyers were new subscribers. This also boosted the revenue per subscriber, which increased by over $1 from the previous quarter to $63.67.
Chief Executive Dan Hesse is pretty pleased with the way things are improving for the long struggling carrier and believes this to be a ‘transformative year for Sprint’. It’s already ‘off to a good start’.
Looking ahead
While the company is running as per schedule to close its Sprint Nextel Corporation (NYSE:S) platform, it is also looking forward to concluding its pending transactions with U.S. CELLULAR CORP. DL 1 (FRA:US7), Clearwire Corporation (NASDAQ:CLWR) and Softbank Corp (TYO:9984) by July 1. Softbank made a $20.1 billion proposal last October for 70% ownership in the company, and now in early April DISH Network Corp (NASDAQ:DISH) made a counter-bid of $25.5 billion. Both the proposals have the same object of making the combined entity more challenging so that the third largest carrier can effectively contend the big two. The deep pocketed Japanese giant is expected to infuse the much needed cash into Sprint’s business and accelerate the Network Vision process. Simultaneously, the capital injection would also enable the carrier to conclude its Clearwire Corporation (NASDAQ:CLWR) deal.
However, the unexpected Dish offer has made investors hope for a higher offer from Softbank Corp (TYO:9984) in response to the satellite TV provider’s more attractive counteroffer. Chances are bleak that Softbank will sweeten its offer. Either way, whether with Softbank or with DISH Network Corp (NASDAQ:DISH), Sprint stands to gain.
My takeaway
I believe merging with Softbank would be a more sensible play for Sprint. Not only is Softbank more financially stable, but it also carries relevant wireless expertise that would benefit Sprint in the long run and boost the carrier’s core business. Dish, on the other hand, is a satellite TV provider aiming to venture into the telecom world with the support of an existing player. Agreed that it has amassed wireless spectrum in the recent past, but it is new to the telecom space and has no relevant knowhow. If Sprint plans to inch closer to AT&T and Verizon, it would need the support of a player established in the telecom business. Considering all this, Softbank would make a better suitor to Sprint.
2013 is indeed going to be a turnaround year for Sprint. Huge investments to expand its LTE coverage, completion of its Nextel network shutdown and the conclusion of its merger deal are going to keep Sprint really busy. The Nextel shutdown shall put pressure on the carrier’s second quarter result; but it will prove profitable in the future. Sprint looks like a decent play for the long run. What do you say?
The article Is Sprint Really ‘Off to a Good Start’? originally appeared on Fool.com.
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