Why T-Mobile Crushed Q3 Estimates

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When T-Mobile US Inc. (NASDAQ: TMUS) reported third-quarter 2018 results after markets closed Tuesday, the telecom carrier posted diluted earnings per share (EPS) of $0.93 on revenues of $10.84 billion. In the same period a year ago, the company reported EPS of $0.63 on revenues of $10.02 billion. Third-quarter results also compare to the consensus estimates for EPS of $0.85 and $10.7 billion in revenues.

The big number for T-Mobile was 774,000. That’s the number of the company’s net postpaid additions for the quarter, a far larger number than either Verizon (295,00 net postpaid additions) or AT&T (69,000). T-Mobile’s number of prepaid subscribers rose by just 35,000, a sharp decline from a gain of 226,000 last year. Postpaid (contract) customers are more valuable to carriers than prepaid customers.

Controlling shareholder Deutsche Telekom has approved the company’s planned merger with Softbank-controlled Sprint. The higher hurdle, of course, is antitrust regulation, and no decision on that is due until next year.

The company’s postpaid churn, the percentage of contract customers switching carriers in the quarter, rose from a record low of 0.95% in the second quarter to 1.02%. Prepaid customer churn rose from 3.81% in the previous quarter to 4.12%.

CEO John Legere commented:

T-Mobile delivered ANOTHER record-breaking quarter! We continue to drive our business beyond expectations and despite the work underway to close the merger, we delivered our best financials ever in Q3. Our customer growth accelerated again, benefiting from the investments we are making in network and in customer experience, leading to 22 quarters in a row with more than 1 million net customer additions.

Service revenue rose to $8.1 billion, a 6% year-over-year increase and record high. Branded postpaid average revenue per user (ARPU) slipped 0.8% sequentially and 1.7% year over year to $45.17. Prepaid customer ARPU fell 1.5% year over year to $38.34.

For the full year, T-Mobile said it expects net customer additions to total 3.8 million to 4.1 million, well above the prior estimate of 3.0 million to 3.6 million. Adjusted EBITDA is now expected to total $11.8 billion to $12 billion, an increase from the previously estimated range of $11.5 billion to $11.9 billion.

Analysts expect fourth-quarter EPS of $0.67 and revenue of $11.3 billion. For the full year, the consensus estimate calls for EPS of $3.21 and revenue of $43.02 billion.

The stock got a nice lift Wednesday, trading up about 7.2% at $68.53 at noon. The stock’s 52-week trading range is $54.60 to $70.94 and the consensus 12-month price target is $78.05.