T-Mobile posted its best-ever quarter for subscriber growth, but those gains came at a steep cost.
Riding the wave of an aggressive program in which the carrier covered the early termination fees of customers willing to make the switch, T-Mobile added a net 2.4 million new customers in the first quarter of 2014, the first time the company has exceeded the 2 million customer mark in growth.
But T-Mobile posted a first-quarter loss of $151 million, or 19 cents a share, reversing a year-earlier profit of $106 million, or 20 cents a share, as its promotional efforts weighed on the bottom line.
Its revenue, however, rose 47 percent to $6.9 billion, helped by the inclusion of acquired prepaid carrier MetroPCS. Excluding its results, revenue rose 19 percent.
The results compare to analysts' average forecast of a loss of 10 cents a share and revenue of $6.92 billion, according to Thomson Reuters.T-Mobile has been on a mission to drive customer growth, with CEO John Legere playing the role of renegade, brashly announcing new offers while putting down the competition.
As the No. 4 national carrier in the nation, the company has veered toward the outrageous -- including crashing AT&T's CES party and insulting them on Twitter -- to be heard past the deeper marketing pockets of rivals AT&T and Verizon Wireless.
T-Mobile posted 1.3 million net so-called branded postpaid customers -- those who pay at the end of each month and pass certain credit checks. A year ago, the company had lost a net 199,000 customers.
"The results have lived up to the promise; T-Mobile's Q1 growth was simply staggering," said MoffettNathanson Research analyst Craig Moffett.
The customers were made up of 1.26 million smartphone customers and 67,000 tablet customers, which has been a recent push for the company.
The turnover rate for these customers fell 40 basis points to 1.5 percent from a year ago.
On the prepaid side, T-Mobile added 465,000 customers in the first quarter, or more than double its rate from a year ago, again helped by the inclusion of MetroPCS's results.
During the period, T-Mobile sold a record 6.9 million smartphones, which accounted for virtually all of its handset sales.
Its average revenue per user for branded customers fell 8 percent to $50.01 largely because of the switch to its Value and Simple Choice plans, which no longer carry the increased fees that came with a smartphone subsidy. Instead of a higher service charge, customers pay another fee to cover the cost of their device. The metric known as ARPU continues to be a concern for investors because it keeps declining, but T-Mobile noted that the sequential decline in the first quarter was more moderate in the fourth quarter. The company's executives have said they expect ARPU to stabilize in the coming quarters.
On an adjusted earnings before interest, taxes, depreciation, and amortization basis, the company netted $1.1 billion, below an analyst estimate of $1.2 billion due to the aggressive discounts.
T-Mobile expects total branded post-paid net growth to be between 2.8 million and 3.3 million in 2014, up from a prior estimate, but suggesting a slowdown in its pace throughout the rest of the year.
"While we expect T-Mobile to continue to grow, this is the best net add quarter we are likely to see from T-Mobile for a while," said New Street Research analyst Jonathan Chaplin.
It also expects adjusted ebitda to be between $5.6 billion and $5.8 billion.
AT&T proved to be relatively resilient to T-Mobile's offensive, posting surprisingly strong results in the first quarter. Verizon and Sprint, however, each saw a dramatic drop-off in smartphone customers.
The carriers had a back-and-forth match as they cut prices and shook up their plans to better compete with T-Mobile. In response, T-Mobile earlier this month unveiled two additional offers, including a low-end capped data plan for budget customers, and 1 gigabyte of data each month to tablet customers. Lastly, Legere kicked off a campaign to end overage fees, or the additional fees customers pay when they go over their monthly allotment of data. He went so far as to start a Change.org petition, which has more than 170,000 signatures.
As AT&T and Verizon rely on capped plans, they have the most to lose from such a move. The companies haven't responded to the petition.
T-Mobile shares rose $2.36, or 8 percent, to $31.65 in pre-market trading.
Updated at 6:53 am PT: To include analyst comments and updated stock quote.