Shares of the country’s fourth largest wireless carrier, Sprint Corp (NYSE:S) kicked off the year in high gear, suggesting that Sprint stock isn’t quite done with its strong rally from 2016, in which it gained a splendid 144%.
Sprint stock took a battering in 2014 and 2015 in large part due to competitive pressures in the U.S. wireless industry. Sprint was bleeding subscribers like mad due to serious issues with the quality of its network. With the likes of T-Mobile US Inc (NASDAQ:TMUS) busy poaching subscribers from Sprint and the big players, Sprint stock was in grave danger of becoming an also-ran.
After the strong runup, is now the right time to take profits on Sprint stock, or will investors be better served by holding the shares?
Sprint’s Past Fumbles
Sprint is a company currently in the throes of a major infrastructure upgrade under new chief executive Marcelo Claure. Marcel believes the company is moving in the right direction and says Sprint is now run like a big startup where decisions are made quickly with none of the past bureaucracy.
When former Sprint CEO Dan Hessy joined the company in 2005, he had no idea of the magnitude of the task that lay ahead of him. Sprint had made the epic mistake of opting for WiMAX over LTE as the carrier’s 4G technology of choice, and trying to quickly fix things actually made them worse. Fixing Sprint’s network basically entailed shutting down its two networks: the iDen legacy network it had acquired courtesy of the Nextel deal, and the WiMAX network it had built in an ill-fated gambit to bring 4G to its customers before other carriers did.
But the infrastructure upgrade proved to be far more disruptive than the company had imagined. There was no playbook to learn from since no wireless company had ever attempted such a radical makeover. Ripping out the network degraded the customer experience much more than the company’s engineers and consultants had anticipated, and customers started leaving in droves.
Sprint’s postpaid subscriber churn rate hit an all-time high of 2.7% in late 2013, and the company’s high cash burn made it doubtful whether it would live to tell the tale.
To survive, Sprint was left with little choice than to resort to some rather desperate measures. The company made a generous but costly offer to slash competitors’ customers’ bills in half if they switched.
As expected, the aggressive promotion took a big hit on operating cash and profit, and Sprint stock tanked wildly.
Sprint Stock on the Move
But things are looking up under the new CEO.
Two years after taking over at the helm, Sprint has been making good progress with the network upgrade, and its two-carrier aggregation LTE buildout now covers roughly 70% of its subscribers. Meanwhile, Sprint has been rolling out an even faster three-carrier aggregation which it hopes will cover 55% of its subscriber base by the end of 2017.
Sprint’s average data downlink currently hovers around 6.5Mbps, or only about half what top dogs Verizon Communications Inc. (NYSE:VZ) and T-Mobile manage. Although slow by competitors’ standards, it’s still fast enough to watch YouTube and Facebook Inc (NASDAQ:FB) videos. Sprint’s data plans are still the cheapest around, and heavy usage by subscribers contributes to lower speeds overall.