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Sprint Nextel (S)
Sprint Reports a Loss, but Investors Give News a Warm Reception
In recent quarters, Sprint Nextel has struggled to survive, as competitors including AT&T (T: Charts, News, Offers) and Verizon (VZ: Charts, News, Offers) have been stealing away Sprint's customers. Last calendar year, approximately 4.5 million of Sprint's customers switched to another cell phone company. And as customers have continued to leave, Sprint has seen profit continue to fall. When Sprint Nextel reported their earnings yesterday, things looked decent at first glance, with subscriber loss significantly less than in previous quarters. Is this indicative of a turnaround for Sprint, or will some hidden variables show that maybe the future isn't crystal clear for this wireless carrier.
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The most promising statistic that Sprint reported yesterday was that their drop in subscribers was much lower than previous quarters; while they had recently been losing over 1 million subscribers a quarter, for the first quarter 2009 the company only lost 182,000 subscribers. This definitely shows that Sprint has taken some successful steps to retain subscribers. Additionally, this number got a boost from the success of the Amazon Kindle e-reader, which operates using Sprint's wireless network.
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Although this number looks good, and Sprint did get a boost in some areas, the company unfortunately experienced a strong decline in postpaid customers (customers who sign up for monthly plans and receive monthly bills, as opposed to customers who prepay). This number actually increased from previous quarters, rising from 1.1 million to 1.25 million customers lost; analysts had predicted a loss of around 1.1 million. This seems even more extreme when you compare it to Sprint's major competitors, AT&T and Verizon, who each recently posted a quarterly net gain of over 1 million subscribers. So although Sprint's number of customers lost seems better than normal, the percentage of customer churn actually increased from last quarter. Some analysts worry that Sprint may have missed the boat, as growth in the postpaid industry seems to be coming to an end; so if Sprint wants to improve in this area, they will likely have to figure out how to win back customers from these other wireless carriers.
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On top of this, profits and revenues have both continued to fall; revenue fell 12% from last year, dropping to $8.2 billion, just shy of expectations. Furthermore, the company experienced a loss of $594 million, higher than last year's loss of $505 million. A partial contributor to the loss was a significant amount of severance costs, as the company has recently announced thousands of job cuts. And yet despite all this, shares of Sprint have risen since the announcement. Investors seem satisfied that the company only slightly missed analyst expectations; and although the economy remains uncertain, CEO Hesse remains optimistic, hoping that the soon to be released Palm Pre, and other phones, help spark Sprint's growth. Hesse seems proud of the company's progress so far; now investors must hope that the company can maintain their momentum, and finally push themselves to a quarterly profit, and do something to decrease the number of postpaid customer losses. If the company does this, they will surely face an even better "reception" from their customers and investors.
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