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Analysts Weigh In On T-Mobile’s Free Cash Flow

March 22, 2016 - Written By Daniel Fuller

T-Mobile recently slid into third place among the big wireless carriers in the United States, surpassing Sprint to place themselves firmly in the sights of Verizon and AT&T. During and after this meteoric rise, new initiative after new initiative cropped up, with each obviously requiring some sort of investment. To keep the momentum going, T-Mobile has had to keep the subscribers coming. Their spendable capital, also known as free cash flow, would need to be kept positive in order for them to keep this pattern up. Naturally, with subscriptions beginning to stagnate and stock prices doing the same, investors and analysts have become somewhat worried that T-Mobile’s free cash flow may soon lose its punch, leaving the carrier with the calling card of innovation, dead in the water.

According to industry analyst firm MoffettNathanson, however, not only is T-Mobile not in jeopardy, but is their personal “top pick in Telecom”. Some of the concerns of investors and which have resulted in stalling stock price upswings, include the financial burden of equipment installment plans, the possibility of huge spending at the upcoming FCC auction and incentives for new customers to switch carriers. It doesn’t help of course, that the competition are beginning to pick up on T-Mobile’s strategy and are using their clout, subscriber base and deep pockets to mimic the very initiatives that T-Mobile was using in their plans to leapfrog them.

MoffettNathanson advises that investors should look to other factors, however. T-Mobile’s average revenue per subscriber, or ARPU, is slowly stabilizing, though getting the ARPU to begin rising again may take some time; most likely, the ARPU will continue a slow descent into next year. The rate of the falling is much lower than it has been, however. Additionally, MoffettNathanson assert that many perspectives miscalculate T-Mobile’s earnings before interest, taxes, depreciation and amortization – in short, their net profits, geared in a way to optimally analyze their performance. Investors are wary at the moment, but in essence, MoffettNathanson is saying that stocks and ARPU, at least for the moment, are not a good indicator of performance despite traditional metrics. According to MoffettNathanson, T-Mobile is due for an upswing in the fairly near future and their free cash flow, disconcerting a picture as it may paint towards is nothing to worry about for the time being.