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Analysts: Sprint’s Financial Turnaround Window is Closing

April 15, 2016 - Written By Alexander Maxham

This isn’t new, but it looks like the window for Sprint turning around their financials is closing. At least according to analysts at New Street Research. Since Sprint was bought by the Japanese company, SoftBank, the company has burned through a ton of cash and have cost SoftBank owner Masayoshi Son a ton of money – we’re talking billions here. But little has changed at Sprint. Sure the network is getting better, with them launching LTE Plus in a ton of markets today including New York City. But they aren’t getting out of the red and into the black, like they need too.

New Street Research analysts talked about how investors should ignore “all of the issues around EIP and handset lease plans and the vehicles that have been set up to finance these” in their research note. But did note that investors need to focus on handset ARPU, churn as well as share of industry gross adds. ARPU or Average Revenue Per User is a hugely important metric when looking to see how carriers are able to bring in more cash. And now thanks to Sprint’s aggressive promotions to close out the fiscal year, analysts are expecting their ARPU to go up about 69 cents, and bring it to $59. However that is still a 7.5% drop year over year. New Street Research stated that Sprint would “have to do materially better than this to allay our repricing concerns.” On top of that, Sprint would need 25% of gross adds for the wireless industry for the next three years to offset this repricing strategy. In the fourth quarter, their share was 18% for gross adds in the industry.

Sprint’s churn has improved in the past year. For those unaware, Churn is a term used to describe the number of customers coming to your company versus those leaving. And Churn has been historically high as of late, due to all of the competition in the wireless space. But the analysts believe Sprint’s churn may stop improving now with some promotions expiring and them also implementing tougher credit policies. Analysts also mentioned that right now the company is not growing fast enough to hit a sustainable free cash flow break-even “in a reasonable time frame”. They continued by saying “something big needs to change. We think it is tough to make an investment case premised on a turnaround.” The analysts did mention that there is some prospect if the company could make a deal with T-Mobile, but that won’t happen under the Obama administration, which means a potential deal is at 12 months or more away.