MetroPCS Communications Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shareholders of wireless services provider MetroPCS Communications (NYSE: PCS  ) slammed the phone down in disgust, sending shares down as much as 10.6% earlier in the trading session, following an update on the company's fourth-quarter subscriber growth.

So what: In a situation very similar to that of Leap Wireless International (Nasdaq: LEAP  ) , which also released fourth-quarter subscriber growth today (175,000 customers), MetroPCS's growth simply didn't hit the mark with Wall Street. With analyst estimates for subscriber growth ranging from 214,000 to 250,000, it was a clear disappointment when MetroPCS reported growth of just 197,000 net customers. At least Leap Wireless was within the expected subscriber growth range provided by analysts. MetroPCS did impress analysts with a lower churn rate of 3.7%, which was higher than the year-ago period of 3.5%, but much lower than the 3.95% to 4.2% analysts had predicted.

Now what: Weakness in both Leap and MetroPCS's figures today show us how little room there is for second-tier wireless service companies (i.e., very little). In the case of MetroPCS, the company is at least still profitable, though estimates are falling fast. MetroPCS is considerably less levered to debt than rival Leap, but I don't see any reason to expect its three-quarter streak of earnings misses to come to an end any time soon. As such, like with Leap Wireless, I'm going to advocate avoiding MetroPCS like the plague until the company proves me wrong.

Craving more input? Consider adding MetroPCS Communications to your free and personalized watchlist to keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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