It’s a difficult world out there for everyone who’s looking for a partner, a lesson Sprint Corp (NYSE:S) is learning with each passing day. The U.S. wireless company has been struggling to turn a profit in what has become a fiercely competitive industry, and Sprint stock has been on a roller coaster ride as a result.
Now, Sprint Chairman Masayoshi Son appears to be looking for a way out. His rhetoric over the past few weeks confirmed what many have been speculating — Son wants to sell Sprint and to pretty much anyone who will take it.
Earlier this week, Sprint’s advances were shot down by Charter Communications, Inc. (NASDAQ:CHTR), with the U.S. cable company issuing a statement saying they had “no interest” in buying Sprint.
Ouch.
However, according to reports, Son isn’t going to just roll over. Now, he is supposedly planning to put together a bid to buy Charter. It’s difficult to come up with a scenario in which Son is successful here, especially considering that Charter is far larger than Sprint and the reported $65 billion that SoftBank has assembled to make a deal happen isn’t nearly enough to make that purchase.
Not only is Charter likely too expensive for Son right now, but the company is also in the midst of turning things around. Part of Charter CEO Tom Rutledge’s compensation package depends on CHTR stock making it above $564, so he clearly has incentive to see the company’s revival through.
So, although some are rooting for Son to eventually tie up with Charter, I think we can assume that such a scenario is highly unlikely.
What About T-Mobile?
The other big rumor has been that Sprint will make a deal with T-Mobile US Inc (NYSE:TMUS), a move that would, in fact, be a boon for Sprint stock. However, I’d also venture to say that this is little more than speculation and the deal is, again, highly unlikely.
A T-Mobile and Sprint merger would be great for both parties, especially considering the wireless wars and intense pricing pressure currently going on. Be that as it may, even if T-Mobile went for the deal, it’s unlikely to make it through regulatory approval any time soon, if at all. Sprint should know, because the company held talks to merge with T-Mobile three years ago, eventually calling off the marriage because of regulatory opposition.
Of course, those aren’t the only two companies that might consider buying Sprint, but they’re probably the most likely.
More Problems
So that leaves Sprint to go it alone, a prospect that Sprint stock investors shouldn’t be cheering. Sure, the company’s most recent earnings were better than expected, but there were still quite a few worrying trends.
The biggest red-flag was Sprint’s subscriber numbers, which fell by 39,000 in the most recent quarter. The decline was admittedly lower than the 118,000 customers who left the service during Q1, but it’s still not ideal to see customers leaving despite the carrier’s best efforts to keep them.
There’s a chance Sprint will be able to reverse that churn, especially when you consider the firm’s most recent promotion — a year of free data service for customers who change from their current provider. Meanwhile, Virgin Mobile is offering prepaid customers a year of service for just $1.
The results of these incredible deals won’t be visible until Q3 figures come out, but if they don’t provide a much-needed boost, that will be proof that even free service isn’t enough to get people to use Sprint.
The Bottom Line on S Stock
Sprint might be able to make things happen over the next few months, but S stock certainly doesn’t have my vote of confidence. The firm is grappling with some shaky finances and a poor reputation among customers, both of which will make it even harder for the firm to survive in an already cut-throat industry.
It would take a lot to make me invest in the wireless sector at all right now. A few seemingly impossible takeover rumors and a single profitable quarter simply aren’t enough to convince me that Sprint stock is even close to being a buy.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
