T-Mobile US earnings are exceeding expectations. Why the market is not impressed. – .

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T-Mobile US earnings are exceeding expectations. Why the market is not impressed. – .



T-Mobile United States
Thursday’s second quarter results ticked several boxes on the company’s multi-year trajectory towards 5G leadership and better financial returns for investors.

Management sounded a bullish note, talking about their competitive positions against rivals, progress in integrating the Sprint merger, and adding higher forecasts for subscribers and cash flow this year. But Wall Street has come to expect superlative results from T-Mobile: The company has beaten consensus earnings estimates in nine of the last ten quarters.

T-Mobile stock (ticker: TMUS) fell 1.8% after-hours on Thursday. It had slipped 0.3% in regular trading, to $ 144.63, compared to a 0.4% increase for the

S&P 500.

T-Mobile on Thursday night reported second-quarter revenue of just under $ 20 billion, up 13% year-on-year and ahead of Wall Street analysts’ average forecast of 19.4 billions of dollars. Earnings per share were nearly eight-fold from the pandemic-depressed second quarter 2020, to 78 cents per share, against a consensus of 51 cents. T-Mobile’s adjusted EBITDA (short for earnings before interest, taxes, depreciation and amortization) was much lower, reaching $ 6.9 billion, down 1.6% year-over-year and about $ 150 million ahead of estimates. Finally, free cash flow of $ 1.7 billion last quarter was about $ 100 million below consensus.

T-Mobile also maintained momentum on the subscriber front during the quarter. The company said it added 1.3 million net postpaid wireless customers, that is, those who pay a monthly bill, including 627,000 phones, a very important step for wireless businesses. These compare to Wall Street’s overall 1.1 million estimates for postpaid phones and 561,000 for postpaid phones.

T-Mobile got stronger with the acquisition of Sprint last year, joining rivals

AT&T

(T) and

Verizon Communications

(VZ) at the top of the US wireless market. The $ 26 billion deal has brought T-Mobile tens of millions of new customers, as well as Sprint’s wireless spectrum license portfolio, including its valuable mid-band spectrum, which is in the sweet spot. for 5G. A multi-year process of integrating companies’ networks, operations and customer bases promises to unlock all kinds of economies of scale and competitive advantages, something T-Mobile executives like to remind investors of.

Half-band spectrum offers an interesting trade-off between capacity and range when used in wireless networks. T-Mobile uses its licenses as the backbone of its 5G strategy and has taken a fast lead. Its mid-range network, which T-Mobile calls “Ultra Capacity 5G,” now reaches 165 million people in the United States, and T-Mobile says it will reach 200 million people by the end of the year. ‘year. Its slower, lower-band 5G network covers 305 million people in the United States

AT&T and Verizon only acquired the bulk of their midrange licenses earlier this year, during the C-band auction. This spectrum will not begin to be commercially available until the end of the year. end of this year at the earliest. Meanwhile, some independent network rating companies have put T-Mobile’s 5G network ahead of its competitors in recent tests.

This could be the source of T-Mobile’s continued growth in subscriber numbers, but having lower average prices than its competitors doesn’t hurt either. AT&T, which added 789,000 higher postpaid phones in the second quarter, reported average revenue per account of $ 54.24. T-Mobile’s ARPU was $ 47.61 last quarter, 19 cents below the Wall Street consensus. (Verizon added 275,000 postpaid phones, but it does not report ARPU for postpaid phones. Its average overall postpaid income per account was $ 121.24.)

“We are doing exactly what we said we would do during the merger process, bringing America into the 5G era and doing it without leaving rural areas behind,” said the CEO of T-Mobile, Mike Sievert, on Thursday’s call. “And that leadership is starting to really matter to customers. “

Operating a combined network, store footprint, billing system, and head office (rather than two smaller ones) also means cost savings for T-Mobile. The company said Thursday that about 80% of traffic from former Sprint customers is now on the T-Mobile network. For the second quarter in a row, T-Mobile said it was realizing merger-related cost savings faster than expected. Management has raised its synergy forecast for 2021 by $ 100 million, reaching between $ 2.9 billion and $ 3.2 billion in 2021.

T-Mobile also said they now plan to add 5.0 to 5.3 million postpaid subscribers this year, up from 4.4 to 4.9 million previously. Management has raised the free cash flow forecast for 2021 to mid-term by $ 100 million and the capital expenditure forecast to $ 300 million.

Overall, the results were certainly good. They just weren’t great, and T-Mobile investors learned not to expect anything else.

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