T-Mobile US, Inc. (TMUS) and Sprint Corporation (S) ended months of speculation with an all-stock merger agreement over the weekend, but the news was met with widespread skepticism because Wall Street analysts believe that U.S. regulators won't approve the deal. Both stocks got hammered in Monday's session, dropping T-Mobile shares 13.7% while Sprint stock fell 6.2%, with the shareholder exodus likely to continue in the coming weeks.
Rivals AT&T Inc. (T) and Verizon Communications Inc. (VZ) fell in sympathy, but both carriers would stand to gain following approval of the deal because the merger would reduce competition, allowing the remaining cartel to raise subscriber prices in a stagnating smartphone market. The industry grew just 2.7% in 2017, while many research firms expect zero growth in 2018, with users finding few technical reasons to upgrade. AT&T reports earnings after Tuesday's close. (See also: How T-Mobile-Sprint Deal Will Change Telecom Arena.)
T-Mobile US, Inc. (TMUS) came public in the upper $20s in April 2007 and topped out at $40.87 three months later. The subsequent downtrend continued through the bear market and into the next decade, finally bottoming out near $5.50 in the first quarter of 2010. It bounced into the upper teens in 2011 and stalled out, while a pullback into 2012 found support at the prior low, completing a multi-year double bottom reversal.
![Stock Stock](https://www.cheatsheet.com/wp-content/uploads/2013/05/NOC1-e1369926741255.png)
The stock rallied above the 2011 high in May 2013, setting off long-term buying signals ahead of an uptrend that topped out in the mid-$40s in September 2015. It fell to the mid-$30s in the first quarter of 2016 and took off in a final rally wave, posting an all-time high at $68.88 in May 2017. Price action since that time has failed to match bullish benchmarks, with a decline to a 52-week low in November, followed by a bounce that just reversed at 10-month resistance in the mid-$60s.
The merger announcement triggered the highest-volume selling day since April 2013, dropping the stock into a six-month trendline of rising lows. A turnaround right here could save the day for discouraged bulls, carving a higher low in a possible inverse head and shoulders basing pattern. However, heavy selling pressure signals a major change of heart, raising the odds for a breakdown that tests the 2017 low. (For more, see: T-Mobile Challenges Young People to Create Change.)
Sprint Corporation (S) has struggled for nearly two decades, posting an all-time high near $70 in 1999 and entering a steep downtrend that ended at an all-time low just above a buck in November 2008. The subsequent uptick unfolded in two broad rally waves, lifting the stock to a six-year high at $11.47 in December 2013. It gave up most of those gains into 2016, dropping into a test of the 2011 low at $2.10. Buyers emerged at that depressed level, triggering a sturdy bounce that ended just two points under the 2013 high in January 2017.
The decline into April 2018 found support at the ,618 Fibonacci rally retracement level, generating a breakout above the 200-day exponential moving average (EMA) last week, followed by a high-volume reversal and pattern failure. This sets off strong sell signals that presage a test at the 2018 low under $5.00 in the coming sessions. On-balance volume (OBV) gave up its strongest technical positioning since February during the sell-off, dropping to the lowest low since 2016. This adds considerable danger to the current downswing because the stock was trading close to $4.00 at that time.
The Bottom Line
T-Mobile and Sprint are selling off after their merger announcement, with market players expecting U.S. telecom regulators to deny the hook-up. A large supply of bullish speculators appears trapped in this bearish scenario, forced to sell in an evolving feedback loop rather than wait for committed buyers to bail out their losing positions. (For additional reading, check out: The Industry Handbook: The Telecommunications Industry.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>
- Sprint had a stellar quarter, but what is the reality of their future?
- Both AT&T and Verizon have alternate lines of business. Sprint and T Mobile do not.
- How long can Sprint live on its wireless business before they need a new revenue stream?
Sprint (NYSE:S) surprised a lot of people - and possibly even itself - during the most recent quarterly earnings report that came out on July 25. The company blew past so many metrics that its first quarter was indeed a record-setting one in its history, and stock price surged to near two-year high levels. But Sprint still operates in one of the most capital-intensive and highly competitive industries in the world. They had one good quarter, but what does the future hold?
Let’s take a closer look at where Sprint is vis-a-vis the market landscape. After being the third biggest player in the U.S. wireless market, Sprint lost its position to T-Mobile, which came from behind to overtake it in 2015. When you stay in the red for so long, it’s never going to be too long before a profitable and more agile competitor takes your place. It’s surprising that T-Mobile took so long to do that despite the fact that Sprint has been well behind the curve on subscriber additions.
Although their subscriber base has been in the positive zone, it is one of the lowest in the industry. Moreover, their churn rate is one of the highest. In a high-penetration market, every customer lost is one that is extremely difficult to regain.
The Reality of Max Penetration
Strategy Analytics, a leading research and analytics company that tracks the wireless industry, says that 100 million wireless connections will be added through 2020, with the market reaching 128% penetration rate.
So what will happen after that? Wireless carriers will be forced to look for external revenue streams that can augment their current ones, fight to hold on to their customers while do their best to steal customers from others.
The Way Out
The big two - Verizon and AT&T - know that this day is coming, and they are already hard at work to find alternate revenue streams. AT&T is doubling up its effort to build their GigaPower Network that will allow it to provide high speed fiber-to-the-premises (FTTP) internet connections to households, and Verizon is already a big player in the content market - and now with Yahoo being added to its ranks, it looks more like a conglomerate than a wireless company.
If this continues, T-Mobile and Sprint will be left with the job of finding new sources of revenue streams. If they don’t move now, it could be too late. Personally, I think they’ve already crossed that point of no return.
The problem with Sprint - despite them adding a record 173,000 subscribers during the recent quarter and getting postpaid churn down to 1.39% (the lowest level in the company’s history) - is that the company is still making losses. They have been unprofitable for many years, and Softbank’s backing is the only thing that’s allowing the company to stay alive in the highly competitive industry.
AT&T and Verizon spent $20 billion and $27.7 billion in capital expenditures, while T-Mobile and Sprint spent $6.6 and $7 billion last year, respectively. With Sprint’s cash flow being negative for the last few years, it’s not easy to keep re-investing at the pace you would like to. With cost savings measures yielding fruit, Sprint might be expecting to return to being cash flow positive in the next two years if they keep up their subscription growth rate.
But the real problem is, how long is the runway? If in the next four years, the U.S. wireless market is going to go way over the 100% penetration level, which means most of the potential customers are already in, and companies are trying to sell additional subscriptions to the same customer, then it will be extremely hard for all companies to show sustainable growth in subscriber net adds - an extremely tricky place to be when you are the third and fourth player with no reliable alternate sources of revenue.
In Conclusion
Sprint has done a tremendous job this quarter, no doubt. They balanced their need to cut costs, offer deep discounts to lure customers and provide attractive services to keep the churn low. They might even become profitable in the next four years, but the question remains - what does the long term hold for Sprint?
It’s tough to recommend a stock that’s fighting admirably against all odds in a market that is closing in on it faster than the speed at which the company is recovering.
- Sprint had a stellar quarter, but what is the reality of their future?
- Both AT&T and Verizon have alternate lines of business. Sprint and T Mobile do not.
- How long can Sprint live on its wireless business before they need a new revenue stream?
Sprint (NYSE:S) surprised a lot of people - and possibly even itself - during the most recent quarterly earnings report that came out on July 25. The company blew past so many metrics that its first quarter was indeed a record-setting one in its history, and stock price surged to near two-year high levels. But Sprint still operates in one of the most capital-intensive and highly competitive industries in the world. They had one good quarter, but what does the future hold?
Let’s take a closer look at where Sprint is vis-a-vis the market landscape. After being the third biggest player in the U.S. wireless market, Sprint lost its position to T-Mobile, which came from behind to overtake it in 2015. When you stay in the red for so long, it’s never going to be too long before a profitable and more agile competitor takes your place. It’s surprising that T-Mobile took so long to do that despite the fact that Sprint has been well behind the curve on subscriber additions.
Although their subscriber base has been in the positive zone, it is one of the lowest in the industry. Moreover, their churn rate is one of the highest. In a high-penetration market, every customer lost is one that is extremely difficult to regain.
![Sprint Stock Buy Or Sell Sprint Stock Buy Or Sell](https://i.pinimg.com/originals/2f/0f/c7/2f0fc7615c56190d238296f59625d3fd.jpg)
The Reality of Max Penetration
![Sprint Stock Buy Or Sell Sprint Stock Buy Or Sell](https://marketrealist.imgix.net/uploads/2017/01/Sprint-4Q16-Pre-Analysts-Recommendations.png?w=660&fit=max&auto=format)
Strategy Analytics, a leading research and analytics company that tracks the wireless industry, says that 100 million wireless connections will be added through 2020, with the market reaching 128% penetration rate.
So what will happen after that? Wireless carriers will be forced to look for external revenue streams that can augment their current ones, fight to hold on to their customers while do their best to steal customers from others.
The Way Out
The big two - Verizon and AT&T - know that this day is coming, and they are already hard at work to find alternate revenue streams. AT&T is doubling up its effort to build their GigaPower Network that will allow it to provide high speed fiber-to-the-premises (FTTP) internet connections to households, and Verizon is already a big player in the content market - and now with Yahoo being added to its ranks, it looks more like a conglomerate than a wireless company.
Sprint Buy Sell Hold
If this continues, T-Mobile and Sprint will be left with the job of finding new sources of revenue streams. If they don’t move now, it could be too late. Personally, I think they’ve already crossed that point of no return.
The problem with Sprint - despite them adding a record 173,000 subscribers during the recent quarter and getting postpaid churn down to 1.39% (the lowest level in the company’s history) - is that the company is still making losses. They have been unprofitable for many years, and Softbank’s backing is the only thing that’s allowing the company to stay alive in the highly competitive industry.
AT&T and Verizon spent $20 billion and $27.7 billion in capital expenditures, while T-Mobile and Sprint spent $6.6 and $7 billion last year, respectively. With Sprint’s cash flow being negative for the last few years, it’s not easy to keep re-investing at the pace you would like to. With cost savings measures yielding fruit, Sprint might be expecting to return to being cash flow positive in the next two years if they keep up their subscription growth rate.
But the real problem is, how long is the runway? If in the next four years, the U.S. wireless market is going to go way over the 100% penetration level, which means most of the potential customers are already in, and companies are trying to sell additional subscriptions to the same customer, then it will be extremely hard for all companies to show sustainable growth in subscriber net adds - an extremely tricky place to be when you are the third and fourth player with no reliable alternate sources of revenue.
In Conclusion
Sprint Stock Buy Or Sell 2017
Sprint has done a tremendous job this quarter, no doubt. They balanced their need to cut costs, offer deep discounts to lure customers and provide attractive services to keep the churn low. Delphi ds150e 2017 software download. They might even become profitable in the next four years, but the question remains - what does the long term hold for Sprint?
Buy Or Sell Online Websites
It’s tough to recommend a stock that’s fighting admirably against all odds in a market that is closing in on it faster than the speed at which the company is recovering.