Sprint Corporation (NYSE:S) shares fell roughly 3% earlier this week after investors were disappointed with the telecom’s most recent earnings report.
The crime? Sprint missed on both the top and bottom lines.
The question then becomes whether Sprint stock is being discounted for good reason, or whether there’s something more to be found in Sprint’s earnings or elsewhere in the business that might show this dip isn’t justified.
So, should you buy Sprint stock? We’ll look at three pros and three cons to find out.
3 Pros for Sprint Stock
Post-Pay Additions: During the quarter, Sprint added 211,000 postpaid subscribers after the company lost 231,000 customers during the same quarter a year ago. What were Sprint’s competitors doing? AT&T Inc. (NYSE:T) added 411,000 postpaid customers for the quarter, but that was down from 625,000 additions in the year-ago period. Verizon Communications Inc. (NYSE:VZ) added more total subscribers at 565,000 in the most recent quarter, but that represented just a 4.8% improvement. Translation: Sprint didn’t have the biggest number, but it certainly represented the biggest swing.
Ports Are Rising: Sprint also said it increased the number of customer is added from other carriers. This represented the first quarter that Sprint accomplished said goal in nearly three years. “We’ve gone from over 500,000 customers ported away to a net positive 10,000 ported in this quarter,” CEO Marcelo Claure said. That’s a massive change, and a sign that Sprint is doing something right. Another positive sign? Sprint saw churn drop from 2.32% down to 1.84% during the quarter.
Teaming up With Google: Just a few weeks ago, Sprint announced it was teaming up with Google Inc (NASDAQ:GOOG)(NASDAQ:GOOGL) to offer a wireless services being called Project Fi that will allow subscribers to make calls via Wi-Fi, Sprint’s network or T-Mobile US Inc’s (NYSE:TMUS) platform. Customers will pay $20 to Google for the service, which will offer talk, text and Wi-Fi tethering. (Cellular data will be additional.) The partnership makes Sprint part of the solution to high-cost services, not part of the problem. While S very well could lose customers due to the new service, the money received from Google should help offset losses.
3 Cons for Sprint Stock
Missed on Earnings: As mentioned before, Sprint put up awfully disappointing hard numbers on the earnings front. Revenues of $8.28 billion missed the analyst mark for $8.45 billion, and the company’s net loss of 6 cents was wider than the 4 cents that Wall Street forecast.
Cash Burn: Sprint spent $914 million during the most recent quarter. Some analysts are concerned that Sprint will run out of money sometime in 2016 should the company continue to burn cash at this rate. But in a post-earnings interview, Claure stated that S has $7.5 billion in liquidity and a very financially sound parent in Softbank Corp (USA) (OTCMKTS:SFTBF). Marcelo also said that if the company continues to grow and needs money, Sprint will be able to tap debt, equity and/or spectrum. It’s great to have these options, but ideally, investors don’t want Sprint to have to dig.
Competition Closing In: Sprint currently has 57.1 million customers, making it America’s third-largest telecom by that metric — but T-Mobile is closing in fast with 56.8 million. In the telecom game, where technology is constantly changing and the networks regularly need upgraded, customer count matters. Sprint needs to continue the customer momentum it built this quarter; it’s already the No. 3 behind the immovable duopoly of AT&T and Verizon, and dropping to No. 4 would be a worrisome sign.
Verdict
The problem with Sprint — at least for new money — is that the company is producing a lot of conflicting signs. While subscriber numbers are clearly pointed in the right direction, its financials aren’t anything to crow about. The cash burn is an especially troublesome problem that speaks to Sprint’s very ability to survive, Softbank or not.
So, should you buy Sprint stock? No — if you’ve already got it, there’s no strong reason to sell right now, but don’t take a flier if you’re not already in.
As of this writing, Matt Thalman was long GOOG. Follow him on Twitter at @mthalman5513.
