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T-Mobile (TMUS) Beats on Q4 Earnings Despite Lower Revenues

T-Mobile US, Inc. TMUS reported relatively modest fourth-quarter 2022 results with healthy customer growth driven by diligent execution of operational plans. The Bellevue, WA-based company delivered industry-leading growth in postpaid and broadband customers driven by its 5G network and best-value combination with a focus on customers. However, the top line missed the Zacks Consensus Estimate while the bottom line beat the same.

Net Income

Net income in the quarter was $1,477 million or $1.18 per share compared with $422 million or 34 cents per share in the prior-year quarter. The significant year-over-year improvement despite top-line contraction was primarily attributable to lower operating expenses. The bottom line beat the Zacks Consensus Estimate by 8 cents.

In full-year 2022, T-Mobile recorded net income of $2,590 million or $2.06 per share compared with $3,024 million or $2.41 per share in 2021.

T-Mobile US, Inc. Price, Consensus and EPS Surprise

T-Mobile US, Inc. price-consensus-eps-surprise-chart | T-Mobile US, Inc. Quote

Revenues

Quarterly total revenues declined to $20,273 million from $20,785 million despite a healthy improvement in service revenues due to lower equipment revenues owing to a challenging macroeconomic environment. The top line lagged the consensus estimate of $20,873 million.

Total revenues in 2022 decreased to $79,571 million from $80,118 million as lower equipment revenues more than offset growth in service revenues.

Segment Results

Total Service revenues in the reported quarter grew 3.7% year over year to $15,518 million, led by Postpaid service revenue growth of 6.9% ($11,725 million) driven by higher customer account and average revenue per account (ARPA). T-Mobile recorded 1.8 million postpaid net customer additions and 927,000 postpaid phone net customer additions in the quarter for respective tallies of 6.4 million (record high) and 3.1 million in 2022. Postpaid phone average revenue per user (ARPU) improved 1.7% year over year to $48.86, led by premium services, including Magenta MAX.

Prepaid revenues declined 1% to $2,449 million despite net customer additions of 25,000 in the quarter. Prepaid ARPU declined 2.6% to $38.29. Wholesale and other service revenues were $1,344 million, down 11.9% year over year. The company recorded high-speed Internet net customer additions of 524,000 in the quarter for 2.6 million customers by the end of 2022.

Equipment revenues totaled $4,451 million, down 19.2% year over year. Other revenues were $304 million, down from $316 million a year ago.

Other Details

Total operating expenses decreased to $17,526 million from $19,722 million in the year-ago quarter. Consequently, operating income improved to $2,747 million from $1,063 million. T-Mobile recorded an adjusted EBITDA of $6,828 million compared with $6,302 million a year ago.

Cash Flow & Liquidity

In 2022, T-Mobile generated $16,781 million of cash from operating activities compared with $13,917 million in 2021. Free cash flow in 2022 improved to $7,656 million from $5,646 million in the prior year on higher operating cash flow.

As of Dec 31, 2022, the company had $4,507 million in cash and cash equivalents with $65,301 million of long-term debt compared with respective tallies of $6,631 million and $67,076 million in the year-ago period. During the quarter, T-Mobile repurchased 16.5 million shares for $2.3 billion to bring the tally for 2022 to 21.4 million shares for $3.0 billion. The company has a remaining authorization of up to $11.0 billion worth of share repurchases through the end of September 2023.

Guidance

T-Mobile has offered initial guidance for 2023. The company expects postpaid net customer additions between 5 million and 5.5 million. Core adjusted EBITDA (adjusted EBITDA less lease revenues) is estimated to be between $28.7 billion and $29.2 billion. It anticipates cash from operating activities within $17.8 billion to $18.3 billion.

Cash purchases of property and equipment, including capitalized interest, are projected between $9.4 billion and $9.7 billion, while free cash flow is estimated in the $13.1 billion to $13.6 billion range. Merger synergies are expected in the range of $7.2 billion to $7.5 billion for 2023.

Zacks Rank & Stocks to Consider

T-Mobile currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arista Networks, Inc. ANET, carrying a Zacks Rank #2 (Buy), is likely to benefit from the strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 17.5% and delivered an earnings surprise of 12.7%, on average, in the trailing four quarters.

It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.

TESSCO Technologies Incorporated TESS, carrying a Zacks Rank #2, delivered an earnings surprise of 126.1%, on average, in the trailing four quarters. Earnings estimates for TESSCO for the current year have moved up 44.3% since January 2022.

TESSCO offers products to the industry’s top manufacturers in mobile communications, Wi-Fi, wireless backhaul and related products. With more than three decades of experience, it delivers complete end-to-end solutions to the wireless industry.

Motorola Solutions, Inc. MSI carries a Zacks Rank #2. It has a long-term earnings growth expectation of 9% and delivered an earnings surprise of 6.6%, on average, in the trailing four quarters.

As a leading provider of mission-critical communication products and services worldwide, Motorola has ensured a steady revenue stream from this niche market. The communications equipment maker intends to boost its position in the public safety domain by entering into strategic alliances with other players in the ecosystem.

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