Will Revenue Expansion Augment T-Mobile's Third-Quarter Earnings?

T-Mobile US, Inc. TMUS is set to report third-quarter 2024 results on Oct. 23, after the closing bell. In the trailing four quarters, the company delivered an earnings surprise of 2.72%, while in the last reported quarter, it delivered an earnings surprise of 9.69%.

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The wireless service provider is expected to witness a top-line expansion year over year, backed by growing demand for its postpaid services. Management’s focus on developing advanced 5G use cases and integrating advance AI to boost customer services are tailwinds.

Factors at Play

During the quarter, T-Mobile inked a multi-year partnership with OpenAI, aimed at redefining the customer experience and setting new standards for customer service globally. The collaboration is set to have brought together T-Mobile’s extensive expertise in customer relationship management and OpenAI’s advanced AI technology to build the first intent-driven AI-decisioning platform, IntentCX. This initiative is likely to have a favorable impact in the upcoming results.

In the quarter under review, T-Mobile successfully conducted a wireless emergency alert in the United States for the first time, using SpaceX’s Starlink satellites. TMUS’ lowest multi-server latency has significantly reduced network delays and has accelerated application response times. By integrating Starlink’s direct-to-smartphone capabilities with its industry-leading wireless network, T-Mobile is likely to have mitigated the issues of mobile dead zones where legacy cell signals cannot reach. 

T-Mobile's 5G was also utilized to elevate fan’s experience during Major League Baseball All-Star Week in Texas. These developments are likely to have supported the top line in the third quarter.

Key Developments in Q3

In the September quarter, T-Mobile announced that the company has inked a definitive agreement to establish a joint venture (JV) with KKR & Co. Inc. to acquire Metronet with its majority shareholders, Oak Hill Capital and the Cinelli family. This partnership is expected to have empowered T-Mobile to cater to the evolving demands of its users through access to advanced connectivity and technology solutions.

This acquisition, subject to customary closing conditions and regulatory approvals, is expected to close in 2025. Upon closing, T-Mobile is expected to acquire a 50% equity stake in the JV for approximately $4.9 billion.

Overall Expectations From TMUS

Our estimate for total service revenues is pegged at $16.73 billion, suggesting 5.2% year-over-year growth. The estimate for equipment revenues is pegged at $2.9 billion, indicating a 6.9% decrease year over year. Branded postpaid ARPU is likely to have remained flat year over year.

For the September quarter, the Zacks Consensus Estimate for total revenues is pegged at $19.88 billion, which indicates an improvement from the year-ago quarter’s reported figure of $19.25 billion. The consensus estimate for adjusted earnings per share is pegged at $2.34, up from $1.82 reported a year ago.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for T-Mobile this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.61%. The Most Accurate Estimate is pegged at $2.33, while the Zacks Consensus Estimate is pinned at $2.34. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: T-Mobile currently has a Zacks Rank #3.

Stocks to Consider

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season.

Corning Incorporated GLW is set to release quarterly numbers on Oct. 29. It has an Earnings ESP of +1.08% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Qualcomm Technologies, Inc. QCOM is +0.48% and it carries a Zacks Rank of 3. The company is scheduled to report its quarterly numbers on Nov. 6.

The Earnings ESP for Arista Networks, Inc. ANET is +0.96% and it carries a Zacks Rank of 2. The company is scheduled to report its quarterly numbers on Nov. 7.

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