About five years ago, T-Mobile US, Inc. (NASDAQ:TMUS) declared war on wireless. It’s “Un-carrier” marketing approach was basically more than a shot across the bow of its competitors, it was an all-out offensive designed to grab market share and deliver superior service. As a commoditized business, wireless success pretty much depends on marketing and service and TMUS stock has demonstrated that the company is succeeding on that front.
T-Mobile’s latest earnings report seems to cement that fact. The company’s customer base has grown by more than 39 million in the past five years, almost doubling.
Fourth-quarter branded postpaid revenues grew 7% to $4.98 billion — up almost 8% for the year to $19.49 billion. Prepaid revenues were flat in the quarter at $2.37 billion, but up about 10% for the year to $9.38 billion. Total service revenues rose 7.1% to $7.8 billion in Q4 and were up 8.3% to $30.2 billion in 2017. Add in equipment revenues and we get total revenues up 5.1% to $10.8 billion in the quarter, and rising 8.3% to $40.6 billion in 2017.
Boiling it down to the bottom line, and subtracting a fantastic benefit of $2.2 billion from the tax cuts, net income for the quarter came in at $507 million, up over 20% from last year’s $390 million. For the year, net income rose more than 14% to $2.6 billion, up from $2.3 billion (backing out losses on disposal of spectrum licenses).
The result of all this was a 25% increase in operating cash flow for the quarter to $2.06 billion, and a 30% annual increase to $7.96 billion. That further led to a free cash flow increase to $1.137 billion for the quarter, up from $743 million. For the year, free cash flow was $2.73 billion, up from $1.373 billion.
The reason for these amazing numbers is that TMUS stock management focused big time on grabbing consumers. There were total net additions of 1.9 million in the quarter and 5.7 million for the year. There were 1.1 million total branded postpaid net additions in Q4 and 3.6 million for the year. That’s on top of the 891,000 branded postpaid phone net additions in the quarter and about 2.8 million for the year.
Churn is decreasing — just 1.18% in the quarter and 1.18% for the year, down by 12 basis points.
T-Mobile is opening new stores like a banshee — 2,800 over the past year alone.
Next year, things look great as well, with TMUS stock management targeting branded postpaid net customer additions of 2-3 million, with a 17% increase in operating cash flow and 47% increase in free cash flow.
Meanwhile, TMUS stock is aggressively paying down its long-term debt, reducing it from $20.5 billion in early 2016 to just over $12 billion. The company has $1.2 billion in cash.
Analysts see 25% annualized earnings growth over the next five years, yet on a trailing-twelve-months (TTM) net income basis, TMUS stock only trades at an 18.5 multiple. It’s cheap — and I can’t believe I’m saying that.
Once we are clear of this volatile market, I would seriously consider grabbing some shares.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.