MetroPCS witnessed its stock price surge Thursday morning after the carrier announced second quarter results showing a continued focus on operating metrics, though a dramatic drop in customer growth.
MetroPCS said it lost 186,062 customers during the second quarter of this year, which was a complete turnaround from the 198,810 customer it added during the same quarter last year. The drop came despite improved customer churn that fell from 3.9% last year to 3.4% this year.
Analysts were expecting the loss as the carrier has decided to not aggressively pursue customers by increasing device subsidies. MetroPCS is sort of stuck on this front as it’s averse to adding too many new customers to its legacy CDMA network in favor of its more spectrally efficient LTE operations, while at the same time it has not been able to get its hands on LTE devices at an attractive enough price point.
“We believe in the absence of low-cost LTE phones, [MetroPCS] is doing the right thing by focusing on cash flow rather than unprofitable subscriber growth,” noted Macquarie Equities Research in a report.
While customer growth took a hit, total revenues increased 6% year-over-year to $1.281 billion for the quarter, bolstered by a slight uptick in average revenue per user to $40.62. The carrier also managed to curb spending, which resulted in a 77% increase in net income for the quarter to $149 million.
More importantly for the investment community, adjusted earnings before interest, taxes, depreciation and amortization increased 33% year-over-year to $477 million, which was a company record and well above expectations.
This helped bolster investor confidence as MetroPCS’ stock price (PCS) was up more than 37% early Thursday, and also had an impact on rival Leap Wireless (LEAP), which saw its stock price trading up more than 9%.
MetroPCS reported that while its cost per gross customer addition increased $12.65 to $190.53 for the second quarter, its cash cost per user dipped 54 cents to $18.40. Capital expenditures also came in under expectations as the carrier said it spent just $182 million in capex for the second quarter and has spent just $326 million of a forecast $900 million to $1 billion for all of 2012. This should result in a financial bonus for infrastructure and tower companies during the second half of the year.
As for ongoing operations, MetroPCS noted that 8% of its nearly 9.3 million total customers were on its LTE network. The carrier said it expects to be supporting its LTE services with 10 megahertz of spectrum (5×5 megahertz) across major markets by the end of the year, though according to a Twitter post by industry analysts Bill Ho, the carrier is on the lookout for additional spectrum assets. Ho noted that the carrier indicated Verizon Wireless’ intent to auction A-Block spectrum in the 700 MHz band could be problematic as that spectrum is still experiencing interference issues from nearby television channels, and that a potential TD-LTE wholesale deal with Clearwire remains elusive as MetroPCS claims that technology and business model remain untested.
Macquarie Equities added that MetroPCS’ second quarter results showed that management was lining up the carrier for a potential sale, though timing and potential partners remain a sticking point. Rumors have abounded about a possible deal with either larger rivals Sprint Nextel or T-Mobile USA, or even a long-standing rumor of a potential tie-up with Leap Wireless.
“The company’s strategy to run the business for short-term cash flow as opposed to long-term growth, is consistent with our belief that [MetroPCS] is still looking to sell the company,” the investment firm noted.
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