T-Mobile blows away profit expectations as customer growth surges

The carrier continues its torrid pace of subscriber growth amid stiff competition in the wireless business.

Roger Cheng Former Executive Editor / Head of News
Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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  • SABEW Best in Business 2011 Award for Breaking News Coverage, Eddie Award in 2020 for 5G coverage, runner-up National Arts & Entertainment Journalism Award for culture analysis.
Roger Cheng
3 min read

T-Mobile CEO John Legere had another good quarter of subscriber growth. Sarah Tew/CNET

T-Mobile has shown it can win over customers at an impressive rate. Now it needs to prove it can consistently make money doing so.

If the second quarter's results are any indication, T-Mobile is off to a good start. The nation's fourth-largest wireless carrier posted a profit of $361 million, or 42 cents a share, on revenue of $8.2 billion. Analysts, on average, had forecast earnings of 18 cents a share on revenue of $7.94 billion, according estimates compiled by Yahoo.

Just as important: T-Mobile said it expects to keep posting a profit for the rest of the year.

T-Mobile shares rose 5.6 percent to $39.10 in pre-market trading.

The figures are further indications that T-Mobile's "Uncarrier" campaign, which the company says focuses on the aspects of the wireless industry that annoy consumers, has had a positive effect on its fortunes as it seeks to pick off customers from larger rivals Verizon Wireless and AT&T. It is also looking to finally surpass No. 3 carrier Sprint, which as of the last quarter held a narrow edge in customers. T-Mobile's moves are just part of a broader intensification of competition in the wireless business.

Credit Suisse analyst Joseph Mastrogiovanni called the results "strong," noting that there had been concerns about higher customer growth leading to lower earnings.

T-Mobile, in particular, has been busy this summer. The company kicked things off in June with a program that lets customers upgrade their smartphone three times a year, anytime they want. It followed that up with the announcement that subscribers will be able to use their smartphones in Canada and Mexico without additional roaming fees. Earlier this month, it introduced a new family plan that gives its members 10 gigabytes of data a month (while taking away an unlimited data plan option), and on Tuesday guaranteed a monthly charge of $15 for anyone buying an iPhone 6 with plans to upgrade to the next version later this year.

The company's profit did fall slightly from a year ago, when it generated a net income of $391 million, or 48 cents a share. But the year-ago results benefited from the gain of the sale of spectrum licenses, or the radio airwaves critical to ferrying wireless data and phone calls.

The company earlier this month said it added a net 2.1 million new customers in the second quarter, boosting its base to 58.9 million. The total included 1 million new T-Mobile branded customers who pay at the end of the month -- a lucrative base of people with generally higher credit scores called postpaid subscribers.

Verizon added 1 million new customers in the second quarter, while AT&T added 2.1 million new customers. But unlike AT&T and Verizon Wireless, which relied upon devices such as tablets and connected cars for their customer growth, a majority of T-Mobile growth came from traditional cell phone customers, which generates more revenue for the company. Out of the 1 million new T-Mobile branded postpaid customers, 760,000 signed up for phone service.

The customer turnover rate for its branded postpaid base was 1.32 percent, down from a year ago, but a slight tick up from the first quarter. The customer turnover rate for its prepaid business also rose from a year ago and from the first quarter.

As a result of the stronger customer growth, T-Mobile upped its forecast for the year to a range of 3.4 million to 3.9 million new branded postpaid customers from a prior estimate of 3 million to 3.5 million.