Is Sprint Corporation Stock A Winner Post The Q1 Earnings Beat

  • Sprint announced the best ever postpaid net additions quarter in nine years.
  • The company also recorded the fourth straight quarter of postpaid connections growth.
  • Investors rewarded Sprint stock with a 20% price jump, but the challenges remain for the full fiscal.

Sprint Corporation (NYSE:S) received a rousing vote of confidence from investors, moving up 20% to nearly $5.90 on July 25 shortly after the first quarter earnings were released.


The No. 4 wireless carrier in the United States beat estimates by a small margin in the second quarter of 2016, adding 173,000 postpaid wireless customers during the quarter - the highest they’ve recorded in the last nine years. In the process, they also achieved the fourth consecutive quarter of growth in their postpaid phone base.


Sprint has been offering plenty of discounts and perks as the company aggressively pursued net additions, but the company’s net loss increased to $302 million - up significantly from $20 million a year earlier. Postpaid churn - the rate at which subscribers leave to other networks - was reported at 1.39% - the lowest level in Sprint’s history in the wireless segment.

Sprint reported revenues of $8.01 billion and a loss of $8 per share, while analysts’ consensus expectation was $7.99 billion and a loss of $8 per share. Though the slightly-better-than-expected revenue results did help, it was actually the net addition number that lifted investor sentiment, sending the stock price over the top.


Marcelo Claure - President, Chief Executive Officer & Director from Q1 Earnings Call

We had the highest postpaid phone net additions for a fiscal quarter in the last nine years, including Nextel migration. This was driven by our best ever postpaid phone churn in the company's 20-year history in wireless and continued growth in postpaid phone gross adds. As a result, Sprint was postpaid net port positive against all three national carriers this quarter for the first time in over five years.

Overall net additions was reported at 377,000 on the back of the migration of Nextel users to Sprint’s network. With 173,000 net adds in postpaid phones, Sprint claimed to be net port positive against “every national carrier this quarter for the first time in over five years” meaning more users switched to Sprint from other services than the other way around.

In my recent Sprint Corporation earnings preview, I noted that 'net additions' was the metric that would send the stock either way. As predicted, the stock jumped nicely on their announcement of a record quarter of net postpaid additions in nearly a decade.

The company also boasted that they beat AT&T in net postpaid phone additions with 400,000 new units added in the first quarter.

The Real Reason for Optimism at Sprint Corp.

There's no doubt investors were as pleased as the management with the results of the first quarter, and I believe their guidance for fiscal 2016 did play its part in instilling investor confidence.


Although there was no upward revision on guidance for the full fiscal 2016, the market has accepted this reality as a matter of fact. Considering Sprint’s stronger performance in Q1 compared to the fourth quarter of 2015 as well as the year-ago quarter, I think investors are fairly confident that the company will be able to meet current guidance on key metrics.

Adjusted EBITDA guidance remains between $9.5 and $10 billion with an operating income of between $1 and $1.5 billion. It’s clear that the company wants to continue its focus on cost-saving measures so that it can improve profitability and stabilize its operating revenue, but the biggest story from the quarterly earnings report is that the company expects to be cash-flow positive next year.

There have been a lot of concerns about Sprint’s liquidity position and whether or not the company will be able to keep moving forward. Sprint reported a negative cash flow of $3.17 billion for FY 2015, but this quarter, CFO Tarek Robbiati put to rest some of the investors’ worries:

“We expect that we will have adequate sources to provide all the capital necessary to fund the business and repay the debt maturities due in FY 16”

Challenges for Sprint

Sprint’s turnaround story is definitely gaining momentum, and the expectation that the company will slowly but eventually get back to being profitable is what is helping the stock move to higher ground. The validation for this comes from record net postpaid adds and a low churn rate, proving that the company can add customers to its list while holding its own flock together despite the intense competition.

On the whole, it’s a great start to the year ahead and, if the company can keep this momentum going, then Sprint Corporation stock will most likely keep moving higher and higher. Sprint’s mantra for this fiscal seems to be: Keep cutting costs; keep adding subscribers.

The challenges to doing this are still immense because they have to keep their pricing in check while adding more users. That’s going to put an enormous amount of pressure to keep their cost-savings measures moving.

It’s a tightrope walk for sure, but they have tasted some success during this quarter. If they can keep moving towards positive cash flow, they might be able to give T-Mobile a serious run for its money despite the latter having usurped their position as the 3rd largest wireless company in America.

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