Nextel:
By Jeffry Bartash, CBS MarketWatch
Last Update: 5:25 PM ET Oct 15, 1998 NewsWatch
McLEAN, Va. (CBS.MW) -- Investors severed connections with wireless phone provider Nextel Communications Thursday amid concerns about a slowdown in net subscriber additions.
Shares of the company (NXTL) , 20-percent owned by Motorola (MOT), slumped 2 3/8, or 12 percent, to 17 5/16 -- slightly above its 52-week low. The stock had traded as low as 15 3/8.
In its third-quarter report, Nextel said it achieved net subscriber additions of 375,000, below the 400,000-plus expected by analysts and below the 401,000 net subscriber growth in the second quarter. It's still 17 percent above the net growth of 322,000 in the year-earlier quarter, however.
"I don't think 375,000 is anything to blanch at," said Dan Akerson, Nextel's chairman and CEO, during a conference call.
Nextel attributed the lower-than-expected net increase to the introduction of the new i1000 digital wireless phone, which prompted prospective customers to put off purchases until the new phones were available in August. Company officials told Wall Street analysts that they saw a pickup in new subscribers once the phones became widely available.
By and large, analysts did not seem concerned by the slowdown in net subscribers. BT Alex. Brown Research analyst Jeffrey Hines, for example, reiterated his "strong buy" rating, telling clients that "Nextel will likely rank in the top 3 in the U.S. for total new subscribers added in the third quarter."
In the fourth quarter, which encompasses the holiday season, Nextel executives projected net subscriber growth of 350,000-375,000, which they called a "strong number" for a normally slow part of the year.
Big positive
Analysts also lauded Nextel's ability to achieve a positive cash flow in its U.S. business for the first time, well before its competitors in the cellular and PCS, or personal communication services, sectors. Cash flow, or earnings before interest, taxes, depreciation and amortization, is a key indicator of health for companies in fast-growing high-tech industries.
Nextel registered positive cash flow of $7.2 million in the third quarter, compared to cash flow loss of $124 million a year earlier.
In its overseas operations, Nextel's sustained a cash flow loss of $46.7 million, bringing the total cash flow loss in the quarter to $39.5 million.
On a net basis, Nextel lost $442 million, or $1.56 a share, compared to a loss of $318.9 million, or $1.26, a year earlier. Analysts were expecting a smaller loss of $1.36 a share in the latest quarter, according to First Call Corp.
Revenue, however, doubled from a year earlier, to $506.6 million from $207.2 million. Strong revenue growth was also aided by higher revenues per subscriber.
Domestic subscribership registered 2.42 million in the third quarter, up from 1.27 million a year earlier.
Nextel, with operations in 75 of the top 100 U.S. markets, provides a unique brand of digital, analog and specialized mobile radio wireless services for individuals and companies across the nation.
"Nextel has a differentiated all-in-one service that cannot easily be replicated by cellular or PCS providers," J.P. Morgan Securities analyst Michael Rollins told clients in a report Wednesday. He's maintaining Nextel as one of his top wireless picks for 1998.
Jeffry Bartash is a reporter for CBS MarketWatch
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