Sprint Reports Wider 4Q Loss

Sprint Nextel S has reported a wider 4Q loss due to demand for Apple's AAPL iPhone boosting costs to subsidize the device. According to Bloomberg, Sprint's net loss expanded to $1.3 billion, or 43 cents per share, from $929 million, or 31 cents per share, the previous year. Sprint sold 1.8 million iPhones in the fourth quarter, though Sprint, Verizon and AT&T buy iPhones from AAPL and sell them at a loss in order to get customers to sign up for long-term contracts. “The financials are weak due to the amount of money they are sending to Cupertino,” James Ratcliffe, an analyst at Barclays Capital, said to Bloomberg. “This year and next are going to be unattractive financially. I think people who own Sprint might be looking more toward the prospects in 2014.” On Wednesday, Piper Jaffray said that Sprint's results were essentially in-line, EBITDA was better than forecast, and post[aid adds fell short of expectations. “Total wireless service revenues were 1.6% lighter than expected (total wireless revenues were 0.5% lighter than our estimate on slightly better equipment sales). Total company revenues were 0.3% below our estimate. Sprint gained 161k postpaid customers in the quarter compared to our estimate of 200k gained. The company's prepaid adds of 507k were 3.4% less than our forecast of 525k.” The previous day, Piper Jaffray had said that, “Sprint is scheduled to report its fourth quarter results tomorrow, February 8, before the market open. Ahead of the print, we are raising our 4Q estimate for churn and lowering our estimate for postpaid net adds. As the company noted at a recent investor conference, a temporary uptick in involuntary churn may increase the time needed for the company to show meaningful churn improvement. We continue to rate Sprint Overweight. Our $5.00 target is based on our DCF analysis to 2015, using a NT cost of capital of 7.2%, a terminal cost of capital of 8.2% and terminal growth rate of 2.0%.” Deutsche Bank raised a similar point, stating that, “We believe investors are looking for iPhone sales of 1.5-2M as evidence that Sprint's $15.5B commitment to this device is gaining traction. We expect the 2012 outlook to include discussions of (1) iPhone impacts (e.g. growth, handset mix, margins), (2) Vision milestones (e.g. opex/capex targets, LTE launches, iDEN migration) and (3) pot'l new funding sources (e.g. vendor financing). We maintain our Hold rating based on risks associated with Sprint's 4G spectrum strategy and limited visibility on improved EBITDA and cash flow trends until at least 2014.” Sprint will be seriously hoping that all of the new iPhone customers will translate into profit by the end of FY2012. For now, they are left with this unusual situation of great customer growth but a $1.3 billion loss. Sprint activated 1.8 million iPhones in the period and it claims that 40 percent of those activations came from new customers. It added a total of 1.6 million new customers, with 161,000 customers signing a new long-term contract. The Sprint brand added 539,000 new postpaid customers, while Nextel lost 378,000 customers.