delivered fourth-quarter financial results Wednesday that were generally ahead of expectations. Benefits from the 2020 purchase of Sprint continue to separate the company from its peers.
‘s guidance for 2023 left some to be desired, but management tends to set expectations conservatively.
(ticker: TMUS) delivered earnings of $1.18 a share for the last quarter of 2022, beating a forecast of $1.07 among analysts tracked by FactSet and earnings of 34 cents a share a year earlier. Revenue was $20.27 billion, down 2.5% and below the consensus call for $20.64 billion.
T-Mobile’s $6.6 billion in core adjusted Ebitda—or earnings before interest, taxes, depreciation, and amortization—management’s preferred profit measure, was up 16% and matched Wall Street’s estimate, while free cash flow of $2.2 billion, up 96%, beat by about $200 million. Net income was $1.5 billion, up 250% from a year earlier.
T-Mobile stock was up 0.3% on Wednesday, vs. a 0.5% decline for the
T-Mobile preannounced its subscriber metrics in early January, so there were no surprises there on Wednesday. The company said it added a net 927,000 postpaid phones, matching consensus estimates. That all-important metric was up by 3.1 million in all of 2022, leading the US wireless industry.
T-Mobile’s postpaid phone average revenue per user was $48.86 in the fourth quarter, up 1.7% year over year and slightly ahead of consensus. Management attributed to that increase in more customers signing up for Magenta MAX, its priciest plan.
That combination of adding subscribers and increasing ARPU boosted T-Mobile’s fourth-quarter postpaid service revenue by 7% year over year.
For 2023, T-Mobile forecast free cash flow between $13.1 billion and $13.6 billion, which would be up 75% at the midpoint. That’s effectively a cut from the $13 billion to $14 billion guidance for 2023 free cash flow that management gave at an investor day in 2021. It compared with Wall Street’s consensus estimate for $13.4 billion.
Management also expects 2023 core adjusted Ebitda between $28.7 billion and $29.2 billion, which was up $450 million at the midpoint from the 2021 investor day and matched consensus. It implies growth of about 10% in 2023.
On the subscriber front, T-Mobile said it expects postpaid net customer additions between 5 million and 5.5 million in 2023, after adding 6.4 million in 2022. Consensus was at 5.8 million.
The management forecasts could be interpreted as an overall disappointment, but T-Mobile tends to guide conservatively and then beat its own estimates.
“T-Mobile has a lengthy track record of starting the year off as somewhat conservative and then posting consistent beat-and-raises,” wrote RBC Capital Markets analyst Kutgun Maral on Wednesday. “Therefore, we would be buyers on any softness associated with consternation around the 2023 guidance.”
In fact, T-Mobile has exceeded virtually every bit of guidance it has offered since closing its acquisition of Sprint in 2020.
A promise of the combination is the potential for significant share buybacks in the coming years as merger-related costs decline, the business grows, and free cash flow ramps up. T-Mobile spent $2.3 billion on repurchasing its stock in the fourth quarter, adding to $669 million in buybacks in September. The company bought back 21.4 million shares for $3 billion in all of 2022, as part of a $14 billion repurchase authorization.
At the investor day in early 2021, T-Mobile management said that the company could direct some $60 billion toward share repurchases between 2023 and 2025. The company has a market value of about $186 billion.
Also on Wednesday, Benchmark’s Matthew Harrigan reiterated his Buy rating and $197 price on T-Mobile stock, implying a potential gain of about 34%.
Harrigan has his reasons. For one, he likes how the company prices his plans for him. T-Mobile, unlike
(VZ), hasn’t moved up its prices along with inflation; its plans covering three phone lines range from $90 to $140 a month, depending on the perks one gets.
On its website, T-Mobile says, “We won’t raise the price of your rate plan—ever.”
The company has the ambition to grow at faster than 20% in smaller markets and rural areas, according to a transcript from a conference in May last year. Harrigan sees the goal as achievable, he said.
“The stock continues to behave as a relative safe haven,” the analyst added.
Nearly 85% of the analysts tracking the stock side with Harrigan, rating it at Buy. Thirteen percent have Hold ratings and the others are at Sell. T-Mobile was a Barron’s stock pick in August.
Write to Karishma Vanjani at email@example.com