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DJ T-Mobile Beat Earnings Estimates, but Forecasts Fell Short, Nipping the Stock -- Barrons.com

· 02/04/2021 17:36
By Nicholas Jasinski

T-Mobile US closed an eventful 2020 having added more subscribers than its rivals and handily outgrown the broader wireless industry. The self-described "un-carrier" reported better-than-expected earnings and revenue for the fourth quarter Thursday evening, and had pre-announced strong subscriber results in early January.

T-Mobile stock (ticker: TMUS) slipped 2.2% in after-hours trading Thursday to about $128. Investors have come to expect a lot from T-Mobile, and top- and bottom-line beats were likely already priced in. Plus, the company's 2021 profit and subscriber growth guidance were both just below Wall Street's forecasts.

T-Mobile reported 60 cents in fourth-quarter earnings per share, which beats the 49-cent average analyst forecast. But some expected T-Mobile to do even better -- estimates ranged as high as 61 cents per share. The result compares with the 87 cents per share that pre-Sprint merger T-Mobile earned in the fourth quarter of 2019.

Revenue came in at $20.3 billion, versus the $19.9 billion consensus forecast and the $11.9 billion for stand-alone T-Mobile in the same quarter a year earlier. T-Mobile's adjusted earnings before interest, taxes, depreciation, and amortization -- or Ebitda -- were $6.7 billion, ahead of the $6.5 billion Wall Street estimate. Adjustments include $686 million in merger-related costs.

T-Mobile's previously announced fourth-quarter subscriber numbers included net additions of 1.6 million postpaid subscribers -- wireless customers who receive a monthly bill -- while analysts had been expecting about 1.5 million, on average. T-Mobile also said it signed up a net 84,000 prepaid subscribers last quarter, roughly matching Wall Street's consensus estimate.

For the full year 2020, T-Mobile earned net income of $3.1 billion -- or $2.65 per share -- and adjusted Ebitda of $24.6 billion on $50.4 billion in sales. Capital expenditures were $11.0 billion, and free cash flow was $3.0 billion. T-Mobile added 5.5 million postpaid subscribers -- including 2.2 million postpaid phones -- and about 145,000 prepaid subscribers in 2020.

T-Mobile's churn rate -- the percentage of customers who cancel every month -- was 0.9% in 2020 and 1.03% in the fourth quarter.

It was a big quarter for wireless industry subscriber growth overall: AT&T (T) added a net 1.2 million postpaid subscribers and Verizon Communications (VZ) signed up a net 703,000. All three carriers stepped up their promotions before and during the holidays, with many offering steep discounts on Apple's (AAPL) new 5G-enabled iPhones.

On Thursday's earnings call, T-Mobile CEO Mike Sievert took a swing at his competitors.

"In a quarter when Verizon sacrificed growth for profitability, and AT&T sacrificed profit growth for customer growth, only T-Mobile delivered customer growth and profitability growth, beating consensus on both," Sievert said. "We're about to take all of their customers."

T-Mobile sees the good times continuing in 2021, as the cost savings and economies of scale from its acquisition of Sprint kick in. The company has already achieved $1.3 billion in annual cost savings since the combination closed in April. CFO Peter Osvaldik said on Thursday that T-Mobile expects to see $2.7 billion to $3 billion in annual synergies in 2021. That includes savings from combining networks, brand and marketing budgets, and reduced administrative and back-office costs.

T-Mobile's 2021 guidance presented on Thursday also calls for net postpaid customer adds of 4 million to 4.7 million, capital expenditures of $11.7 billion to $12.0 billion, and free cash flow of $4.9 billion to $5.4 billion. Management also expects to see $26.5 billion to $27.0 billion in adjusted Ebitda, which excludes an estimated $2.5 billion to $3.0 billion of merger-related costs. Wall Street consensus estimates before the call included 5.0 million postpaid subscriber adds and $27.1 billion in adjusted Ebitda.

T-Mobile will host an investor day in March after the results of the C-Band auction have been made public. Wall Street expects management to increase their estimate of cost savings from the Sprint acquisition, and to unveil new long-term guidance.

That should be the next major catalyst for T-Mobile stock, which has soared 60% over the past year, when Barron's recommended buying the shares. It compares with a 18% return including dividends for the S&P 500, and 1% and 18% losses after dividends for Verizon and AT&T, respectively.

Write to editors@barrons.com

(END) Dow Jones Newswires

February 04, 2021 17:36 ET (22:36 GMT)

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