Telecom & Wireless

Can Sprint Be Saved?

Sprint Corp. (NYSE: S) has been in a transformative stage in its development, after hiring a new CEO in August and attempting to reposition itself among the telecom giants. The earnings from its fiscal second quarter may not have been indicative of this change in direction but, in fact, show the challenges that Sprint has before it.

The company missed its earnings, reporting a net loss of $0.19 per share on $8.5 billion in revenue. The guidance given for the third-quarter expects significantly higher gross additions and upgrade volumes. However, the trend of losing postpaid phone customers has pressured wireless service revenue over the past few quarters and this is expected to continue.

Sprint said it would cut another 2,000 jobs as it seeks to optimize its cost structure. The company is targeting $1.5 billion in annualized cost reductions compared with 2014 spending levels. About $400 million of the cost reductions will come from this and other recent employee firings.

The company had total platform net additions of 590,000 in the second quarter. Gains consisted of 827,000 wholesale net additions and 35,000 prepaid net additions, less 272,000 postpaid net losses. The postpaid phone gross additions grew 37% month-over-month and posted the first year-over-year increase for 2014.

The Japanese firm SoftBank cut its annual profit forecast by 10% to 900 billion yen, which is the better part of $1 billion. This was due to its ownership of Sprint. SoftBank bought Sprint for $22 billion in the previous year, in an effort to expand outside of Japan. CEO of SoftBank Masayoshi Son commented on Sprint’s situation, “Sprint’s battle will be long and tough, and it’s not something that can be fixed in a short time.”

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J.P. Morgan reiterated a Neutral rating for Sprint, but moved its price target down to $6 from $8, on October 13. However after earnings, MarketWatch reported that J.P. Morgan moved its price target down further to $5.

Shares of Sprint were down about 17% at $5.14 approaching the noon hour Tuesday, following the earnings release and other updates. The consensus analyst price target is $7.28, and the 52-week trading range is $4.86 to $11.47. Sprint’s market cap is near $24 billion.

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