A variety of wireless operators released fourth quarter results last week, including national carrier VoiceStream Wireless Corp., regional operator Western Wireless Corp. and flat rate, local calling provider Leap Wireless International Inc.
VoiceStream
VoiceStream, which is in the midst of a takeover by Germany’s Deutsche Telekom, added 602,000 net subscribers during the fourth quarter, well short of analysts expectations of 750,000 net additions and company forecasts’ of about 750,000 net additions. VoiceStream said it ended the year with approximately 3.9 million subscribers, comprised of 2.9 million post-pay customers and 971,000 prepaid customers.
Analysts noted many of the net additions were attributed to the closing of acquisitions, including Cook Inlet transferring its licenses to VoiceStream in December.
Total revenue for the fourth quarter increased from $163.8 million in 1999 to $649.9 million last year, also below expectations of approximately $700 million in revenue. Net losses attributed to shareholders also increased from $151.7 million in 1999 to $809.1 million last year, with losses per share more than doubling from a loss of $1.58 per share during the fourth quarter of 1999 to a loss of $3.49 last year. Analysts were expecting losses of $2.76 per share.
“Over the past 12 months, VoiceStream has transformed from a regional wireless operator to the first rank of nationwide wireless carriers,” said John Stanton, chairman and chief executive officer of VoiceStream, in a statement.
During the company’s conference call, Stanton noted VoiceStream had a way to go in carrying out its wireless data strategy, but noted its network was in place and would be operational during the second quarter.
“The main shortfall came in the area of devices,” Stanton explained. “We have not seen any device which are commercially acceptable and available le at this point. We expect a change in the immediate future.”
For the year, VoiceStream posted revenues of $1.9 billion in 2000, compared with $475.5 million reported in 1999. Net losses for the year jumped from a loss of $454.7 million, a loss of $4.75 per share in 1999, to a loss of $2.1 billion, a loss of $10.93 per share, last year.
Analysts and investors reacted quickly to VoiceStream’s results. Wit SoundView reduced its rating of the company’s stock from Strong Buy to Buy, with Solomon Smith Barney reducing its rating from Outperform to Neutral. Investors followed suit, sending VoiceStream’s stock down nearly 5 percent in early trading last Thursday to below $100 per share. The stock was as high as $150 per share last July.
“Although sales quadrupled from the prior-year period, this was entirely due to acquisitions; management did not publish pro-forma numbers that would have provided some context for same-store growth,” said Todd Bernier, an analyst for Morningstar.com, in an analyst note. “Despite adding more than 600,000 subscribers in the quarter-again thanks to acquisitions-VoiceStream’s cash flow losses increased. [VoiceStream’s] management continually highlights operating cash flow before marketing costs; maybe we’re just cynics, but we think that marketing expenses are a normal cost of doing business in the consumer-driven cellular industry. With other lower-priced carriers to choose from . . . we fail to see why anyone would want to own stock in an inept firm like VoiceStream.”
VoiceStream also announced last week it began circulating a proxy statement for its shareholders to vote on regarding the proposed merger with Germany’s Deutsche Telekom. Shareholders are expected to vote on the merger by March 13, with the company expecting the deal to occur by early summer.
“The merger with Deutsche Telekom will provide the operating capital to the business to ensure VoiceStream service can continue to be the most sought after services in telecommunications today,” said Stanton.
But that proposed merger has soured recently along with DT’s stock price. Moody’s Investor Service downgraded its rating on DT last week from stable to negative, sending the company’s stock down more than 5 percent to a two-year low of just more than $27.16 last Tuesday. The initial decline was followed up by another drop last Thursday to below $25 per share before rebounding slightly. The decline places DT’s stock well below the $29.88 price the deal calls for before VoiceStream shareholders can demand renegotiations of the deal.
Moody’s said the downgrade was due to increased uncertainty regarding DT’s ability to carry out a crucial asset disposal plan in a skittish equity market. DT’s ability to raise capital is seen as important to offset the more than $29 billion in debt DT took on last year, including large winning bids for third-generation licenses in Germany and England.
While most analysts feel the $34 billion deal will be approved by VoiceStream shareholders, DT’s top executives have taken considerable heat for letting the proposed deal drag on the company’s stock, noting DT’s inability to close a merger with Telecom Italia and paying what some felt was too much for VoiceStream.
Morningstar.com’s Bernier noted that without the pending deal, VoiceStream’s stock would also suffer.
“Without the ridiculous acquisition offer made by Deutsche Telekom, VoiceStream Wireless shares would be getting pounded in response to the firm’s lousy December-quarter numbers,” Bernier said.
VoiceStream said last week it would issue its shareholders an extra .0075 share for each share they held before the closing of the merger in an attempt to add value.
Western Wireless
Rural wireless operator Western Wireless released strong fourth quarter results ahead of most analysts’ expectations, ending the year with more than 1 million domestic wireless subscribers.
The company said it added 54,000 internal customers and 19,000 acquisition subscribers during the quarter, a 30-percent increase compared with the fourth quarter of 1999, and ahead of consensus estimates of 52,000 customer additions.
Company revenue jumped from $174.1 million during the fourth quarter of 1999 to $237.1 million last year, with net income rising from a loss of $783,000 in 1999 to a profit of $65.2 million during the fourth quarter of 2000. Earnings per share rose from a loss of 1 cent per share to a return of 81 cents per share. Excluding non-cash stock based compensation expenses and the gain on sale of the company’s Latvian joint venture; net income returned 14 cents per basic share.
First Union Securities said it was expecting a return of 3 cents per share, noting the main reason for the positive variance was higher than expected earnings and slightly lower interest expense.
ING Barings L.L.C. was also impressed with Western Wireless’ results, raisings its earning per share expectations for 2001 from a return of $1.04 per share to $1.25 per share and net additions from 175,000 customers to 185,000 customers.
Leap
Leap’s results showed the company more than tripled its subscriber base during the fourth quarter from 62,500 customers at the end of the third quarter to more than 190,000 by the end of the year. Those customer additions were helped by Leap launching service in 8 new markets and expanding its Nashville, Tenn. market into neighboring Clarksville and Columbia, Tenn.
Total operating revenue for the quarter came in at $14.3 million versus estimates of $20.2 million. For the year, Leap reported revenue of $50.3 million. Net losses for the fourth quarter came in at a loss of $103.5 million, with losses per share of $3.82, beating estimates of a loss of more than $4 per share.
Leap’s stock was little affected by the news, continuing to trade at around $40 per share.
Even while the company continued to rack up increasing losses, many analysts still back Leap’s plans.
“We believe Leap is worth abou
t $86 per share in asset value alone,” said Frank Marsala, vice president of wireless telecom for ING Barings, in an analy
st note. “In our opinion, this is an excellent opportunity to pick up Leap shares, as we believe the execution will follow in 2001.”
