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Is T-Mobile Stock a Buy?

By Robert Izquierdo - Mar 27, 2021 at 8:15AM

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This telecom giant is on a roll. But will its success in 2020 continue inro 2021?

Once trailing behind larger telecom rivals, T-Mobile US (TMUS 0.13%) has transformed into a potent player in the industry. The company not only successfully weathered the coronavirus pandemic in 2020, but it also thrived.

T-Mobile delivered spectacular 2020 financial results, helped by its merger with Sprint last April. Can it keep up these results amid a highly competitive, and saturated, U.S. telecommunications market?

Let's dig into T-Mobile's recent performance, along with its future plans, to find the answer.

Two young women outdoors look at their mobile phones.

Image source: Getty Images.

Customer additions are going strong

T-Mobile exited 2020 with strong momentum. In the fourth quarter, the company added 1.7 million customers, capping a year with its highest customer growth in four years.

Of those, 1.6 million were postpaid net additions (a total that includes tablets and smartwatches). About half that number came from postpaid phone net additions. Postpaid customers are the telecom industry's most valuable.

T-Mobile's results show the company can successfully attract high-value customers. This accomplishment is made more impressive by the fact it occurred amid a global pandemic.

Rival AT&T (T 0.94%) also experienced strong postpaid customer gains in the fourth quarter, but not to the degree T-Mobile did. Verizon Communications (VZ 0.88%) trailed far behind both in net postpaid phone additions coming out of the fourth quarter.

Company Q4 2020 Postpaid Phone Net Adds
T-Mobile 824,000
AT&T 800,000
Verizon 279,000

Data source: Verizon, AT&T, T-Mobile.

T-Mobile's customer growth powered the company to $20.3 billion in fourth-quarter revenue, up from $11.9 billion in 2019. While these results were impressive, T-Mobile's plans for the future are equally exciting.

5G is the key to the future

At a March 11 analyst day, the "Un-Carrier" (as T-Mobile calls itself) unveiled how it intends to fuel further growth. Like its competitors, the heart of T-Mobile's strategy is its 5G technology.

T-Mobile sees 5G's faster speeds as the vehicle to expand its offerings beyond phone services and into internet access for homes and businesses. Where it may have a competitive advantage is its acquisition of Sprint, which owns valuable radio spectrum rights.

As T-Mobile completes integration of Sprint's network into its own, these spectrum rights will play a key part in establishing a high-quality, expansive 5G wireless network. T-Mobile's 5G network already covers 1.6 million square miles of the U.S., more than double its next closest competitor, AT&T.

From there, T-Mobile plans to extend that network to smaller markets and rural areas, where its current market share is in the low teens. It estimates it can raise that share to nearly 20% over the next five years.

The company will also focus on growing its business customers. Today, T-Mobile's market share of business clientele is less than 10%. Over the next five years, it estimates it can double that share to nearly 20%.

It will also apply its industry-leading churn tactics to Sprint's operations, allowing T-Mobile to strengthen customer retention in that part of its business. Given the fiercely competitive nature of the U.S. telecom industry, customer retention is crucial to success.

The final verdict

T-Mobile is firing on all cylinders today. It exited 2020 delivering strong results in the midst of a global pandemic, and its plans for the future speak to continued customer and revenue growth.

Its track record of success proves T-Mobile is capable of capturing its fair share of the U.S. market. Given that we're in the early stages of 5G adoption, and T-Mobile is still integrating Sprint into its operations, the company has the potential for more upside in the years to come.

T-Mobile's full-year 2020 revenue of $68.4 billion is far behind AT&T's $171.8 billion and Verizon's $128.3 billion. This illustrates T-Mobile has plenty of opportunity to increase its income if it can successfully execute its growth plan.

These factors make T-Mobile a worthwhile investment. It's best to buy and hold on to this telecom stock, keeping an eye on the company's growth over the coming years.

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Stocks Mentioned

T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
TMUS
$126.04 (0.13%) $0.16
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$49.53 (0.88%) $0.43
AT&T Inc. Stock Quote
AT&T Inc.
T
$20.40 (0.94%) $0.19

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