Stock of the Day
|
Sprint (S)
One More Strike for Sprint
Wrapping up their fiscal year ended 2008, the telecommunications giant ended Q4 with a loss of $1.62 billion. This totals $2.79 billion for the year. In comparison to financial stocks like Citigroup (C: Charts, News, Offers), losing $2.79 billion is really not that bad given the recession and economy. Sprint's subscriber base declined by 1.3 million, reducing the company's overall revenue by 14 percent. Still, it continues to provide service to 49.3 million subscribers. This prompted CEO Dan Hesse to state that the company was in a better operating position entering 2009. However, they have been generating consistent losses for over a year now, so the question is will they really be able to end their losses and be back in the black?
|
| Daily Chart |
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here
|
| Stock Analysis |
There are some factors indicating yes, but there are some facts hinting otherwise. In looking at the financials, Sprint was the only service provider to improve "churn" (a metric subscriber turnover). In comparison to the previous quarters, the Overland Park-based company is closing the gap between its losses and still has enough cash on hand to satisfy creditors until 2010. Shares also rose by about 19.9 percent by the end of Thursday's trading day to close at $3.25. Furthermore, Sprint is the furthest along with launching 4G network technologies (their's utilizes WiMAX). They are also known for their push-to-talk services, which allow users to push a button and start talking on it like a walkie-talkie. AT&T (T: Charts, News, Offers) does not provide this, continuing to give Sprint an edge over their rival. Lastly, their flat-rate plans are arguably better than those offered by their peers.
|
In speaking of rivals, Verizon (VZ: Charts, News, Offers) and AT&T were able to add subscribers last year. And while 2008 showed maturing growth, both companies were still profitable. They also have something Sprint lacks: a popular, carrier-exclusive phone backed by an extremely reputable phone company. Everybody has heard about the Apple (AAPL: Charts, News, Offers) iPhone. That one device helped AT&T reach Apple enthusiasts everywhere and even helped build its brand. Verizon has a slew of other exclusive phones, including the Blackberry Storm, manufactured by Research in Motion (RIMM: Charts, News, Offers). What about the Deutsche Telekom (DT: Charts, News, Offers) unit, T-Mobile? Apparently, they still sell the Sidekick and just last year, added the first Google (GOOG: Charts, News, Offers) G1 Android phone to their product lineup. Sure, Sprint has some exclusive phones like the Samsung Instinct and plan on getting the Palm (PALM: Charts, News, Offers) Pre, but these products are not necessarily backed by widespread fanaticism.
|
But high-end handset devices aside, Sprint says they plan to focus on the benefits of their monthly plans. This is interesting because pricing plans are easy to imitate and have proven only a bit successful in motivating individuals to switch. In fact, T-Mobile is testing a flat $50 plan in San Francisco this month. If it works, the plan will reach the national level. If Sprint follows suit, other carriers may follow, and we could see telecommunications companies in a pricing war. It will probably not happen though, because consumers are locked into contracts and have been reluctant to pay early termination fees to switch. Furthermore, the existence of discount service providers can still reach a wider audience than Sprint.
|
Earlier in the year, they mentioned job cuts to battle losses. Probably a smart move, but the company needs to increase revenues as well as cut costs. The short-term spike in its stock price will probably be unsustainable in the end. Despite meeting Wall Street's guidance, the company does not seem like a good investment prospect given its current state. It is possible that they will get more handset-exclusive devices (hopefully some powered by the Google Android software), but depending on the functionality and the design, it may not be enough motivatation for users to come back. They will also have to focus on their brand and reputation. If they can convince people that their network is more reliable now than it was before, that might do the trick. Current data indicates that users believe Sprint's network to be unreliable relative to their peers. Regardless of its validity, this perspective continues to hurt the company.
|
Profile |
Click here to view a detailed profile of Sprint.
|
|
|
|
|
