Sprint adds 279K postpaid phone subscribers in Q3 ahead of expected tie-up with T-Mobile

Sprint added 279,000 postpaid net phone customers during the latest quarter as it continued to close in on a deal to merge with T-Mobile. But it also left the door open for a tie-up with another company.

The No. 4 carrier in the United States saw shares rise this morning after it posted a net loss of $48 million, or 1 cent per share, a marked improvement from the $142 million loss it reported during the same period a year ago. Thomson Reuters I/B/E/S said analysts had expected a loss of 2 cents per share on revenue of $8.05 billion, according to Reuters.

Total revenue came in at $7.93 billion, falling shy of the $7.98 billion predicted by Wells Fargo Securities, and wireless revenue of $7.61 billion also fell short of the $7.7 billion estimate from Wells Fargo.

Investors cheered the news, sending shares of Sprint up roughly 2%.

“Sprint was able to deliver net additions in both its postpaid phone and prepaid business for the third consecutive quarter,” Sprint CEO Marcelo Claure said in a press release. “I’m even more proud that the team was able to deliver this customer growth while continuing to attack the cost structure, improve the network, and maintain positive adjusted free cash flow.”

Here’s a closer look at some other key metrics from Sprint’s quarterly earnings report.

Subscribers: Sprint saw 168,000 postpaid net additions during the quarter, soundly beating most estimates, and its 95,000 prepaid net additions also outpaced forecasts. Postpaid churn of 1.72% rose slightly from the 1.65% during the previous quarter and 1.52% during the prior year, but prepaid churn of 4.83% was down from the 5.63% in 2016.

Financials: Postpaid ARPU was $46, falling short of the $46.75 predicted by Wells Fargo analysts, and prepaid ARPU of $37.83 also failed to meet expectations. Wireless service revenue came in at $5.65 billion, roughly in line with estimates, and equipment revenue of $1.96 billion was just short of estimates.

Potential M&A: Like T-Mobile did earlier this week, Sprint opted not to hold the typical earnings call with analysts, citing rumors of a merger between the two carriers that could be announced any day.

Summary: Industry insiders believe strongly that a proposed merger with T-Mobile will be announced shortly—perhaps even later this week. Whether such a marriage would gain approval from federal regulators, though, is still far from clear. For investors, then, the question is what is Sprint’s value if it doesn’t secure a deal with its rival, according to Craig Moffett of MoffettNathanson Research.

“Today’s results suggest that Sprint’s standalone prospects have gotten better… but not all THAT much better—than they were, say, in January of last year, when the stock traded at below $3 per share,” Moffett wrote in a note to investors. “Subscriber growth trends have stabilized and costs have been cut, but ARPU is now lower, so EBITDA, adjusted for accounting changes, is about the same as it was then. Sprints debt, on the other hand, is some $6B higher now than it was then. Sprint’s free cash flow remains negative.

“Even then, there was at least some meaningful merger probability priced into the stock. Anything lower than a return to such multiples, and it’s possible Sprint could be worth less than its debt.”