2nd UPDATE: MetroPCS 1Q Profit Rises 11% On Subscriber Growth
08 May 2009 - 2:07AM
Dow Jones News
MetroPCS Communications Inc.'s (PCS) first-quarter profit rose
11%, fueled by subscriber growth in several key new markets.
MetroPCS, which offers flat-rate pre-paid pricing with regional
restrictions, sits in the sweet spot in the industry. More
customers are trading down to cheaper plans and avoiding
contracts.
"There's a kind of sea change in consumers looking for greater
value," Chief Executive Roger Linquist told Dow Jones
Newswires.
But the growth has attracted a lot of players, intensifying the
competition in this segment.
That's reflected in MetroPCS's lower average revenue per user,
suggesting it had to cut prices and offer promotions to stay in
contention. Cost cuts, however, helped it to bank higher
profits.
"Profitability impressive given subscriber gains," Goldman Sachs
analyst Scott Malat wrote in a note.
MetroPCS shares, however, fell 6.3% to $17.28. The stock has
rallied more than 75% over the past three months, and was up 11%
over the past week.
"It's profit-taking," said Romeo Reyes, an analyst at Jefferies
& Co. "Overall, the numbers were great."
MetroPCS posted earnings of $44 million, or 12 cents a share, up
from $39.5 million, or 11 cents a share, a year earlier. There were
5.2% more shares outstanding in the most recent period. The latest
results included about $382,000 in write-downs related to hedging;
the prior year had $13.9 million.
Revenue increased 20% to $795.3 million on a 29% jump in
services revenue and 34% drop in equipment revenue.
Analysts polled by Thomson Reuters expected earnings of 9 cents
a share on revenue of $818 million.
Contributing to results were launches in New York and Boston in
the period. MetroPCS blanketed billboards and airwaves in those
cities with advertisements ahead of its rollout.
"We painted the town purple," Linquist said. "The rollout is
going well."
The company said last month that subscribership rose 51% from a
year earlier, marking a third-consecutive quarter of growth and
another record increase. Net subscriber additions rose to
684,000.
Average revenue per user fell 5%, the company said Thursday. It
also said in April that churn, or turnover rate, rose one
percentage point to 5%.
If there is a concern, it would be on turnover. The rate of
customer defections is expected to rise in the second and third
quarters as a result of seasonal trends, Reyes said.
MetroPCS backed its estimate for full-year consolidated adjusted
earnings before interest, taxes, depreciation and amortization of
$900 million to $1.1 billion, as well as subscriber additions of
1.4 million to 1.7 million.
Threatening its forecast are aggressive offers from rival
pre-paid players. Sprint Nextel Corp.'s (S) Boost service offers a
flat-rate, all-inclusive $50 plan, and added 764,000 new customers
in the first quarter.
Virgin Mobile USA Inc. (VM) has also cut its plan to $50 a
month, while Leap Wireless International Inc. (LEAP) competes also
in some overlapping territories. National player T-Mobile USA,
owned by Deutsche Telekom AG (DT), has also delved into the
pre-paid segment.
MetroPCS CEO Linquist, however, said he didn't see much of an
impact in areas where MetroPCS operates. He added that Boost still
has questions about its economics, since its parent has a much
higher cost structure than MetroPCS.
There was little progress on the much-speculated upon merger
between MetroPCS and Leap, with Linquist saying the two haven't met
on that subject.
"It's kind of in our rearview mirrror," he said.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020;
roger.cheng@dowjones.com
(Kerry Grace contributed to this report.)
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