Telecom & Wireless

Short Interest in Sprint Rises

Douglas A. McIntyre

The short interest in Sprint Corp. (NYSE: S) rose in the most recently reported period. Shares sold short in the period that ended December 15 were up by 4.2 million to 70.1 million, which is an increase of 6.3%.

Is it any wonder short sellers like Sprint? Its financial struggles and risky efforts to add subscribers have continued as it operates in the shadows of much larger AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ).

While Sprint’s latest promotion could take market share from AT&T and Verizon, the cost to do will be massive. Sprint has offered to cut what people pay to the two bigger wireless companies by half if they will move their subscriptions. The Sprint plan has five parts. The first is that subscribers from the other two companies show Sprint a recent bill. The next is that they choose one of the smartphones Sprint offers. People must bring in the phone they use on the AT&T or Verizon networks. Then people may keep their current numbers. Finally, Sprint will buy out the contracts of its rivals.

Sprint can ill afford to continue an offer that will drive more red ink on its bottom line. Perhaps that is why the new promotion is a “limited time” offer.

Sprint’s most recent quarterly numbers were brutally bad. It reported its results on November 3:

Sprint Corporation today reported operating results for the second fiscal quarter of 2014, including consolidated net operating revenues of $8.5 billion, an operating loss of $192 million, and Adjusted EBITDA of nearly $1.4 billion. These results occurred during a transitional quarter for the company…

Going forward, the news was not any better:

Given the success of the new offers, the company expects increased selling costs associated with significantly higher gross additions and upgrade volumes in the fiscal third quarter of 2014. In addition, the significant loss of postpaid phone customers over the last few quarters has pressured wireless service revenue, and this trend is expected to continue into the next quarter. Therefore, Consolidated Adjusted EBITDA is expected to be $5.8 billion to $5.9 billion for calendar year 2014.

Wall Street punished the company. Shares have dropped 34% in the past quarter.

It will not be a shock if the next round of short interest data shows an increased position of short sellers in Sprint’s shares.

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