The U.S. economy is getting rocked, and the U.S. mobile business is slowing. So what’s pushing the growth at Leap Wireless, which sells cheap, all-you-can-eat wireless service? Easy: Cheap, all-you-can-eat wireless service.
Leap said today that it signed up 171,000 net new subscribers during Q2, up 35% y/y; that number handily beating Goldman’s estimate of 119,000. Customer retention improved, too: Q2 churn — the percentage of subscribers that leave the service each month — declined to 3.8% from 4.3% a year ago.
While major U.S. carriers like AT&T (T) and Verizon (VZ) have started offering all-you-can-eat wireless service for $99 a month, Leap’s Cricket brand offers comparable service for as low as $45 month. The catch: Cricket is only available in some markets, and isn’t on sale in the three biggest markets, New York, Chicago, or Los Angeles yet. But Cricket has still been expanding aggressively: It’s now available to 22% more potential subscribers than it was last year.
Leap’s Q2 revenue, $474.9 million, narrowly missed the Street’s estimate of $477.6 million, but the company raised its long-term guidance: Leap says it expects expects operating income before depreciation and amortization, or OIBDA, to grow by 35% to 45% annually from 2007 to 2010, up from its previous forecast of 30% to 40% growth, issued in May.
The bigger question: When will MetroPCS, which offers similar service in different markets, make another bid for Leap? The companies basically offer the same service and don’t overlap. And still make more sense together than on their own. Last September, Leap rejected MetroPCS’ $4.7 billion, $69/share initial bid. Since then, both companies’ shares have declined; including today’s 3.7% bump, Leap is trading at $44.97.