UPDATE: MetroPCS 2Q Profit Falls 48% On Higher Turnover
August 06 2009 - 11:26AM
Dow Jones News
MetroPCS Communications Inc. (PCS) posted a 48% decline in
second-quarter earnings as intense competition hamstrung the
discount carrier's ability to hang on to its customers.
The Dallas company barely kept pace with rivals, who are also
aggressively muscling into the so-called prepaid segment. That led
to a startlingly high turnover rate and disappointing subscriber
growth in a period where investors had expected blowout numbers. A
bigger concern: more competition is on the way.
MetroPCS's stock fell 29% to $8.98.
"It's not an overreaction," said Walter Piecyk, an analyst at
Pali Research, on the share decline. "There's a lot of competition
coming. Even when it hasn't arrived they can't put up good
numbers."
MetroPCS Chairman and Chief Executive Roger Linquist, however,
called the movement a knee-jerk reaction.
"Not only are we the best deal in town to our customers, but now
potentially to our investors," Linquist quipped.
MetroPCS has taken steps to stay competitive, including adding
features to its cheaper plans and offering an unlimited
international calling plan. The company, which is expanding into
the key New York and Boston markets, relies on its low-cost model
to profitably serve customers with cheaper plans and no service
contracts.
"We see this as a competitive market," Linquist said. "The best
strategy for a player like ourselves is to have a superior cost
structure."
The lack of a contract, however, has meant the company is unable
to keep its customers when the next cheaper plan arrives around the
corner. Boost Mobile, a unit of Sprint Nextel Corp. (S), was the
chief culprit this quarter. But Tracfone Wireless's Straight Talk,
as well as ramped up efforts by AT&T Inc. (T) and Deutsche
Telekom AG's (DT) T-Mobile USA are expected to hit MetroPCS hard in
the coming quarters.
"The competition is obviously already having an impact on
MetroPCS," Piecyk said.
MetroPCS reported income of $26.2 million, or 7 cents a share,
down from $50.5 million, or 14 cents a share, from a year
earlier.
Revenue rose 27% to $859.6 million.
Wall Street was looking for earnings of 14 cents and revenue of
$862 million.
MetroPCS added 205,585 customers in the period, well below Wall
Street's estimates. It ended the quarter with 6.3 million
customers.
The turnover rate jumped to 5.8% from 4.5%. Historically,
customer defections rise in the third quarter, said Chief Financial
Officer Braxton Carter, but he blamed the abnormally high customer
losses on aggressive promotions in the first quarter, which led to
little incentive for customers to stick around after the first few
months.
The company has since removed the promotion with the thinking
that customers who have to invest more early on in phones and
service plans are likely to stay.
The average revenue per user fell 3.6% to $40.52, although
analysts noted that the company factored in some promotional
activity, artificially boosting the figure, which most peg at
closer to $39.
Linquist, however, said the adjustment was a matter of normal
accounting rules.
"That's unfortunate," he said regarding the confusion over the
numbers. "We should straighten it out."
-By Roger Cheng, Dow Jones Newswires; 212-416-2153;
roger.cheng@dowjones.com