Categories Analysis, Technology

Subscriber growth, 5G prowess give T-Mobile (TMUS) an edge over peers

Expects early synergies from the Sprint deal to continue in the coming quarters, resulting in significant cost-savings

T-Mobile US Inc. (NASDAQ: TMUS) this year increased its footprint in the highly competitive telecom market by acquiring rival firm Sprint. The company, which is currently busy expanding its next-generation 5G network, is on track to broaden the subscriber base further and enhance profitability during the remainder of the year.

The record subscriber addition and T-Mobile’s domination in 5G services make the stock an attractive investment option. That, combined with the steady uptick in revenue per user, should catalyze the top-line performance going forward. Analysts following the company recommend buying the stock, with a price target that represents a 17% upside. Despite the recent rally, the valuation looks favorable from an investment perspective.

Strong Demand

In recent quarters, T-Mobile has been able to consistently generate profit that surpassed analysts’ forecast. Like others in the communications space, including Verizon (VZ) and AT&T (T), the company is thriving on the growing demand for wireless services during the pandemic period.

T-Mobile reports Q3 2020 earnings results

“We continued to see very strong growth in postpaid other devices, including continued traction in T-Mobile for Business this quarter. This reflects how we were the most responsive carrier to the needs of school districts nationwide, as they’ve increased the availability of digital learning solutions due to the greater demand for remote learning this fall,” said Mike Sievert, chief executive officer of T-Mobile, during the earnings conference call.

Upbeat Q3

In the September-quarter, net profit surged 44% to $1.2 billion as revenues grew more than two-thirds to $19.3 billion, supported by contributions from Sprint that joined the T-Mobile fold earlier this year. While acquisition-related synergies make year-over-year comparisons difficult, it gives the company an advantage over competitors on multiple fronts. The faster-than-expected integration should create significant value for both customers and shareholders.

I know it’s early November right now so you’d say we’re well into the quarter, but not the way Q4 normally unfolds. It’s a very holiday-centric quarter. COVID uncertainties with cases on the rise and consumer sentiment unknown, so we gave you a little bit of a cautious guide because we’re watching it. But I go back to — we’ve got a team that’s nimble and confident, it has a great game plan and so far, consumers are responding really well to what we have to offer.

Mike Sievert, chief executive officer of T-Mobile

Record Customer Growth

T-Mobile currently has more than 100 million customers and the sharp increase from last year is attributable to the addition of Sprint subscribers. The combination helps the company reduce costs, mainly related to marketing, network building, and back-office processing. The annual cost-saving is expected to reach $6 billion, which justifies the management’s upbeat cash flow prediction.

On the 5G front, T-Mobile has been well ahead of others since the beginning, thanks to the vast network that covers about 270 million people. Plans are afoot to increase spending on the high-speed network infrastructure to maintain the lead.

Read management/analysts’ comments on T-Mobile’s Q3 earnings

The company’s shares made strong grains soon after last week’s earnings report and hit an all-time high. The stock has gained 57% in the past twelve months and closed the last trading session at $125.48.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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