T-Mobile Adds 2.3M Users in Q3, but Revenue, Profit Miss Mark
It’s a mixed bag for T-Mobile. Although the company added 2.3 million new customers, the company reported lower quarterly revenue and profit in the third quarter. And that has some industry analysts concerned about where the company goes from here.
John Legere, president and CEO of T-Mobile, insisted the company’s “momentum is strong” and that the “incredible customer growth is translating directly into solid financial growth.”
T-Mobile has been on a winning streak, posting 10 quarters in a row of over 1 million net new customers and five straight quarters with over 1 million branded postpaid customers. But the news may not be all that great.
The Bad News
Specifically, branded postpaid phone average revenue per user was generally stable at $47.99 in the quarter. But on a year-over-year basis, this measure declined 3.7 percent. Branded postpaid average billings per user was $62.96 in the third quarter of 2015, up just 2.2 percent year-over-year.
Net income hit $138 million. That’s an improvement from a loss of $94 million in the third quarter of 2014 but still down from net income of $361 million in the second quarter of 2015. Earnings per share (EPS) in the third quarter of 2015 was $0.15 compared to a loss per share of ($0.12) in the third quarter of 2014 and EPS of $0.42 in the second quarter of 2015, the company said. T-Mobile attributed the net income decrease and earnings per share decline to the lower operating income and higher income tax expense.
In the third quarter of 2015, cash capital expenditures were $1.1 billion, down from $1.2 billion in the second quarter of 2015 and flat compared to $1.1 billion in the third quarter of 2014.
Reason for Concern
We caught up with Jeff Kagan, an independent telecom analyst in Atlanta, to get his thoughts on T-Mobile’s quarterly report and what this means for the company going forward. He told us he’s concerned that T-Mobile reported lower quarterly revenue and profit.
“The next question, is this short or long term? The per-user revenue went down. That's not good,” Kagan said. “This is the first real disappointment from T-Mobile in the last few years.”
While T-Mobile’s growth is still fine from the customer point of view, from the investor perspective, this quarter reveals a real chink in the company's armor, he said.
“T-Mobile has been reorganizing its services and pricing to attract the slice of the marketplace more interested in price than performance,” Kagan said. “Ten years ago every wireless carrier tried to win every customer. Today T-Mobile seems to be focused on slices rather than the whole pie.”
Is Slowing Inevitable?
Looking back, Kagan said T-Mobile showed strong growth in the first few years after changing its strategy and adopting its Un-carrier plans. But he said again what he's said countless times: The current state of activity cannot go on forever.
“Eventually T-Mobile growth will slow and that may be what is starting to happen,” Kagan said. “Every growth wave has three parts, growth, cresting then decline.” The question investors may be asking is simple: Is T-Mobile growth cresting?
“I see the wireless industry continuing to grow, but that growth is changing,” Kagan said. “Carriers like T-Mobile have done well over the last couple years, but that level of growth cannot go on forever.”