Sprint (S) Stock Is Going Nowhere – Sell Now

Sprint has been fighting a losing battle in quicksand

Sprint (S) added 237,000 postpaid smartphone customers in its fiscal second quarter. It was the first time in two years that Sprint created growth in this closely watched segment.

Sprint (S) Stock Is Going Nowhere – Sell NowIn total, Sprint added 1.1 million customers across all of its businesses, which include wholesale from partners like Tracfone. By these numbers alone, it seems that Sprint had a solid quarter, so why then is Sprint stock down nearly 7%?

The bottom line is that Sprint’s revenue in the quarter declined 5.2% to $7.5 billion with its service revenue falling 7.6% year-over-year. Also, the company’s $585 million loss was worse than analysts had expected, and when combined with weaker-than-expected revenue, Sprint stock has suffered.

With that said, Sprint’s 1.1 million new customer adds were obviously a positive, but this performance still lagged its competing three nationwide carriers.

In the same three-month period, T-Mobile (TMUS) added 2.3 million customers, Verizon (VZ) gained 1.3 million and AT&T (T) led the pack with 2.5 million. Therefore, it’s no surprise that S stock is falling lower.

Sprint Goes All-In With Little to Show for S Stock

All things considered, the reason that Sprint stock is lower after earnings is not because its competing carriers added more customers, but because Sprint went all-in during this last quarter, putting its best foot forward and still saw year-over-year revenue losses and underperformed its three larger competitors.

This is a company that was by far the most aggressive in promotions during its fiscal second quarter. Not only did it sell unlimited data plans for just $60 a month, less than T-Mobile’s $80 per month plan, but leased iPhone 6s and 6s Plus phones for just $1 and $5, respectively, to ensure that consumers chose Sprint over competing carriers.

Sprint also doubled its retail footprint with the acquisition of bankrupt RadioShack stores, and launched a Direct2You service where Sprint employees actually drive to the consumer to sell and set-up new smartphone plans. And lastly, Sprint got really crazy by offering all DirecTV customers a free year of service to switch service providers (a shot at AT&T).

Therefore, it’s no question that Sprint put its best foot forward and yet still underperformed its larger competitors, and Sprint stock fell after earnings.

What’s Next for Sprint Stock?

After a wild and unpredictable three months filled with promotion after promotion, Sprint is now switching gears to try and cut $2.5 billion worth of costs. This, combined with two financing vehicles created by parent company Softbank (SFTBF), might drive its free cash flow to near-even over the next year. Notably, Sprint has a free cash flow loss over $5 billion the last 12 months.

The problem is that even if Sprint can get free cash flow near breakeven, those cost cuts could likely reverse subscriber growth. Not to mention, Sprint still has a mounting debt problem, having nearly $32 billion in net debt.

In 2016, $3.667 billion of debt will mature, far more than the $1.099 billion this year. As a result, much of Sprint’s cost savings will be allocated to pay debt.

Therefore, Sprint remains a very troubled company, one that essentially gave service and phones to customers for free during its last quarter, and still finished fourth in new customer adds.

As a result, with Sprint now trying to become more efficient, hiking its unlimited data plan from $60 to $70 per month, and having far more debt obligations in 2016 than it did this year, I suspect that Sprint stock is headed in the right direction long-term, and that’s lower.

As of this writing, Brian Nichols was long T stock.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/11/sprint-stock-s-earnings/.

©2020 InvestorPlace Media, LLC