Virgin Mobile USA’s outlook dims expectations

Virgin Mobile USA Inc. reported that in the first quarter its service revenue was down, net income and net customer adds were down drastically, churn was up and average revenue per user was down.
Yet, it was possible for one analyst to take heart, with an important qualifier.
“Overall, it was a good quarter,” Ric Prentiss at Raymond James wrote in a note to investors, “relative to the tame guidance the company provided on the fourth-quarter 2007 conference call in mid-March.”
In March, Virgin Mobile executives had said net customer adds would be in the range of 5,000 to 20,000 – thus the 17,772 net adds reported sounded good, though they were radically down from the restated 309,721 net adds in the year-ago quarter. Service revenue reached nearly $304 million, a relief from previous guidance in the range of $293 million to $303 million, down from $322 million in the year-ago quarter.
Churn reached 5.1%, up more than 25% from the year-ago quarter’s 4%. ARPU declined to $19.93 from the year-ago quarter’s $22.41.
The mobile virtual network operator’s subscriber base was 5.1 million at the end of the quarter, up from 4.9 million in the year-ago quarter.
Shares in Virgin Mobile USA plummeted more than 8% in midday trading to $3.44, down from a high of $15.69 reached in the company’s October 2007 initial public offering.
The disappointment lay mostly in the company’s outlook for the current quarter, according to Prentiss, which included negative net adds of between 130,000 and 160,000 subscribers and service revenue of $285 million to $295 million.
“Virgin continues to feel the pressure from a weak macroeconomic environment,” Prentiss wrote to investors. “We note that the typical Virgin customer tends to have a lower income level than average and we believe is more sensitive to fuel and food costs, which have risen significantly recently.”
“With the pre-paid segment typically seeing weaker net adds in second quarter and third quarter compared to first quarter and fourth quarter, and the U.S. economy possibly getting worse before getting better, we do not believe that there are significant positive growth catalysts in the near term …”
Virgin Mobile USA listed among its first-quarter highlights the announcement of headline acts for its third Virgin Mobile Festival in August in Baltimore.