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Update: Nextel Tumbles
Despite
Smaller-Than-Expected
Loss
By Jamie Paton
TheStreet.com/NYTimes.com Staff
reporter
10/26/00 5:14 PM ET
Updated from 10:29 a.m. EDT
Shares of Nextel
Communications
(NXTL:Nasdaq - news) fell
more than 20% Thursday as
investors became
increasingly worried about
growth in the wireless
telephone company's subscriber base and
heightened competition, despite a
smaller-than-anticipated loss in the latest quarter.
Nextel, as expected, added fewer domestic
subscribers in the third quarter than analysts had
initially predicted, and offered a rather vague
prognosis for the rest of the year, contributing to a
sell-off of its shares.
Nextel, based in Reston,
Va., said it brought 540,400
new U.S. subscribers into its
fold in the third quarter. At
first, Nextel led analysts to
expect at least an additional 550,000 subscribers,
but warned earlier this month that it would miss that
mark, setting off a 10% one-day drop in its stock
price.
Nextel added once again to Wall Street's jitters
Thursday. The company said it expected at least
500,000 new subscribers in the fourth quarter, but it
did not offer a precise figure, leading analysts to
believe it would fall short of estimates for the rest of
the year.
Unlike Nextel, which goes after more lucrative
corporate customers and thus seems less
concerned about the sheer number of its
subscribers, Wall Street was fixated on the
customer base. Nextel's shares dropped sharply
Thursday, down $7.31 to $28.81, after hitting a
52-week low of $27.63. The stock is down more
than 65% from its 52-week high of $82.94, reached
in March.
The issue of new subscribers overshadowed
Nextel's accomplishment. It said its net loss
narrowed to $236 million, or 31 cents a diluted
share, from $361 million, or 55 cents a share, a
year earlier. Analysts polled by research firm First
Call/Thomson Financial had forecast a loss of 37
cents a share.
Nextel also said that its revenue climbed 59%, to
$1.4 billion, in the third quarter ending Sept. 30.
The mixed third-quarter results prompted one
brokerage firm, First Union Securities, to
downgrade Nextel shares on Thursday to buy from
strong buy. Yet Charles Disanza of Gerard Klauer
Mattison, said he remains bullish, commending the
company for its focus on the quality, not the
quantity, of its customers in a bid to increase its
cash flow.
Nextel's operating cash flow more than doubled in
the third quarter, climbing to $359 million, according
to the company. Nextel has said it seeks to strike a
balance between reeling in new subscribers and
stimulating cash flow.
"Investors get carried away with the subscriber
metric," said Disanza, whose firm has done
underwriting for Nextel and rates its stock a buy.
"They're not going for customer count. The thrust is
that they're marching toward the best customer.
They're marching toward profitability."
The market's reaction also is linked to fears over
increased competition for coveted business
customers. Nextel acknowledged Thursday that it is
aware of fiercer price battles on the horizon, but
argued that is largely insulated from the climate
because of its focus on high-spending corporations.
"If you take a look around, you see aggressive
pricing and promotion in the marketplace," Tim
Donahue, Nextel's chief executive, said in a
conference call. "We are starting to feel some
pressure as carriers target our business
customers."
First Union Securities said in a research report
issued Thursday that some larger national
companies are "going after Nextel's unique market
niche," shifting their cross hairs to Direct Connect,
the company's digital two-way radio service.
"While we respect the fact that Nextel has chosen
not to price irrationally to meet some of these
offerings," the report read, "the concern remains
that it may lose some market share" in the fourth
quarter.
Competition was certainly was a factor for Sprint
PCS (PCS:NYSE - news), another provider of
wireless service, which said last month that it, too,
would fall short of growth projections for its
subscriber base.
Sprint PCS had said it expected to add 800,000
wireless subscribers, about 100,000 shy of
analysts' estimates. The Sprint group later delivered
a better number this month, saying it had attracted
839,000 new subscribers in the third quarter, but
still failed to reach the original goal.
Despite the shortfall, Nextel noted in a statement
Thursday that its monthly cash flow per domestic
subscriber is about $22, "among the highest in the
industry." Nextel said it now has a total of 6.2
million domestic subscribers.
Corporate accounts made up about 20% of Nextel's
new subscriber additions in the latest quarter, an
auspicious sign in part because business
customers are less likely than individuals to cancel
their service or be disconnected, the company
noted. Nextel's "churn," or turnover, rate was only
2% in the third quarter.
The sobering messages this fall from Nextel and
Sprint PCS appear to suggest that growth is
leveling off, but Nextel's Donahue sought to
reassure skeptics that prospects for Nextel, along
with the industry as a whole, are brighter than some
seem to think.
"I think it's clear to all us that the wireless industry
is on a pace to add record numbers of new
customers this year," he said in a conference call
with analysts. "Our customers are just really
beginning to understand the utility and the value of
the newly introduced wireless Internet services."
KLP NOTE: The bold marks are mine... |
