Virgin Mobile USA’s stock plunges : Quarterly loss digs into full-year gains, but posts records profit

Virgin Mobile USA Inc. stock dropped more than 53% from its closing price after it reported a $14.7 million loss in the fourth quarter. The mobile virtual network operator did, however, report net income of $4.2 million for the full year, making 2007 the company’s first year to end in the black.
The five-year-old company ended the year with nearly 5.1 million customers after adding 209,669 customers in the fourth quarter and 511,796 for the entire year. This was down significantly from the subscriber growth it experienced in 2006 when the company added 613,752 customers in the fourth quarter that year and brought in 729,313 for the entire year.
Churn increased incrementally from 4.8% to 4.9% for the year, yet dropped from 5.6% in the fourth quarter of 2006 to 5.1% in the last quarter of 2007.
Virgin Mobile USA’s stock has steadily declined during the past month despite preliminary results released in early February that first indicated the company would end the year with a loss of $3 million to $6 million.
Stock pressured
When the company went public in October, its stock sold at $15 per share. It has steadily fallen since then – hitting an all-time low of $1.91 per share March 13, but inching up to $2.51 per share at RCR Wireless News press time.
“At first glance, these results do not look too bad, but Virgin Mobile USA has certainly fallen short of market expectations,” noted Ovum analyst Raymond Yu.
CEO Dan Schulman has said the carrier is sitting out the aggressive handset pricing wars many MVNOs waged to build long-term growth. The company suffered Wall Street’s wrath before on concerns with that business model.
“We maintained a disciplined customer acquisition strategy; while competitors were aggressively lowering prices in the fourth quarter to impact gross adds, we chose not to pursue what historically have proven to be low-value, low-tenure customers,” Schulman said.
Virgin Mobile USA has recently tweaked its pricing plans and taken a more aggressive approach in comparing itself with other prepaid operators on its Web site.
“Virgin Mobile USA, and all the other U.S. MVNOs, should expect much fiercer competition over the next few years, particularly for the prepaid segment Virgin Mobile USA has previously claimed as their own,” added Yu.