Customer Gains Fuel T-Mobile US Earnings

By Joe Tenebruso Markets Fool.com

T-Mobile US (NASDAQ: TMUS) reported first-quarter results on April 24. The No. 3 U.S. wireless carrier is winning new subscribers at an impressive rate, prompting it to raise its growth forecast for the year ahead.

Continue Reading Below

T-Mobile results: The raw numbers

Metric

Q1 2017

Q1 2016

Year-Over-Year Change

Revenue

$9.613 billion

$8.664 billion

11%

Net income

$698 million

$479 million

46%

Earnings per share

$0.80

$0.56

45%

Data source: T-Mobile Q1 2017 financial results.

Image source: T-Mobile.

What happened with T-Mobile this quarter?

Continue Reading Below

T-Mobile added 1.1 million total net customers in the first quarter, bringing its total customer count to 72.6 million and extending the wireless carrier's four-year streak of adding more than 1 million customers every quarter.

"We've been beating up on the competition for over 4 years now while making wireless better for consumers," said CEO John Legere in a press release. "Q1 was no different with T-Mobile again producing the best customer and financial growth in the industry."

T-Mobile added 914,000 total postpaid subscribers -- who pay traditional monthly bills and are typically the most sought-after customers for wireless carriers -- during the quarter, including 798,000 net postpaid phone customers.

T-Mobile expects these figures to lead the industry for the fifth consecutive quarter -- a particularly impressive feat considering that both Verizon Communications (NYSE: VZ) and AT&T (NYSE: T) began offering unlimited data plans in February to better compete with T-Mobile. Yet these moves have not stopped Verizon and AT&T from bleeding wireless subscribers. And many of these customers are choosing T-Mobile as their new carrier.

Moreover, T-Mobile's customer loyalty appears to be strengthening, with branded postpaid phone churn improving 15 basis points year over year to a record low 1.18%. Postpaid phone average revenue per user (ARPU) also improved, rising 2.9% to $47.53.

Together, T-Mobile's subscriber growth and greater ARPU helped to fuel an 11% increase in total revenue, to $9.6 billion.

Additionally, earnings before interest, taxes, depreciation, and amortization (EBITDA) -- adjusted to exclude stock-based compensation, as well as gains related to the sale of spectrum licenses and other non-recurring items -- rose 21% to more than $2.6 billion.

All told, adjusted net income soared 46% to $698 million, and earnings per share jumped 45% to $0.80.

Looking forward

These positive trends encouraged T-Mobile to raise its 2017 customer growth forecast to a range of 2.8 million to 3.5 million branded postpaid net additions, up from prior estimates of 2.4 million to 3.4 million.

Management also reiterated its guidance for adjusted EBITDA of $10.4 billion to $10.8 billion and capital expenditures of $4.8 billion to $5.1 billion.

Looking out even further, T-Mobile remains confident in its ability to grow its operating and free cash flow at annualized rates over the next three years of 15%-18% and 45%-48%, respectively.

"We can take the Un-carrier to every corner of the United States, bringing real choice and competition to wireless customers in every part of the country," added Legere during a conference call with analysts. "I've never been more confident about the future at T-Mobile as we look ahead to the remainder of 2017 and beyond."

Find out why T-Mobile US is one of the 10 best stocks to buy now

Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. (In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the market!*)

Tom and David just revealed their ten top stock picks for investors to buy right now. T-Mobile US is on the list -- but there are nine others you may be overlooking.

Click here to get access to the full list!

*Stock Advisor returns as of April 3, 2017

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.