Sprint (NYSE:S) CEO Marcello Claure has done an admirable job turning his company around. He took a brand that had sunk to fourth in a four-brand field and stopped the bleeding.
Claure's company went from steadily losing customers to posting its highest postpaid phone gross additions in its history in Q2 2017. It has added customers in that category for nine straight quarters, and has also reversed losses in its prepaid business.
Where does Sprint stand now?
The company is still losing money ($48 million in Q2), but that's down from $142 million in the year-prior quarter. Claure has accomplished near-breakeven by cutting expenses while also growing revenue. The company expects $1.3 billion to $1.5 billion of year-over-year net reductions in cost of services and SG&A expenses in fiscal year 2017.
"Sprint was able to deliver net additions in both its postpaid phone and prepaid business for the third consecutive quarter," said Claure in the earnings 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."
Why will I not buy Sprint?
Sprint has improved, but it's fourth in its market with no hope of getting to third. In addition, the company's marketing angle is essentially copying what T-Mobile (NASDAQ:TMUS) does.
In wireless, AT&T (NYSE:T) and Verizon (NYSE:VZ) are the market leaders, while T-Mobile owns the role of disruptive outsider. Sprint has no clear marketing angle other than being a me-too rival to the market leaders.
If AT&T are Coke and Pepsi, T-Mobile is RC Cola, Polar Cola, and every other third-party brand, while Sprint is the white can labeled "cola" in a basic font. Sprint's biggest value is as an acquisition target for T-Mobile, and that deal is unlikely to bring much of a premium.
I won't invest in Sprint because it offers nothing over the other three players in its space. It's not a market leader, nor is it a disruptor. Basically, Sprint is a boat struggling to stay afloat long enough to be conscripted into T-Mobile's navy.
Sprint needs a deal
Claure deserves credit for making his company into something that T-Mobile wants. There was a time when all the Un-carrier needed to do to take Sprint's customers was wait. That's no longer the case, but that does not mean Sprint sits in a healthy position.
The fourth-place carrier has competed by slashing its expenses and cutting prices. Many of its customers joined due to short-term deals, and holding onto them will require maintaining low prices. In addition, Sprint also needs to invest heavily in its network in order to keep up with the expenditures made by T-Mobile, AT&T, and Verizon.
Sprint needs a deal with T-Mobile in order to survive. It has cut its losses, but it can't keep up its current cost structure for the long-term. A merger would benefit both companies, but it's not something T-Mobile needs because it has been adding at least 1 million subscribers each quarter for four-and-a-half years.
I'm not buying Sprint because it's an also-ran on its own and it's not worth any significant premium to T-Mobile. If that deal goes through, the company's name will be a footnote in history, but the deal has reportedly fallen through. If federal regulators block the acquisition then Sprint goes back to being a distant fourth in a race it can't win.