The holiday season was a stinker for Virgin Mobile USA (VM), the “virtual” wireless carrier that re-sells access to Sprint Nextel’s (S) network. The company announced initial Q4 results today, and they were bad enough to send shares down as much as 24%, reaching a new all-time low at $6.12.
The worst news: The company missed its own projections, which it raised just a few months ago. In its Q3 earnings release last Nov. 15 the company bumped up its Q4 growth forecast, predicting it would add between 350,000 and 400,000 net new subscribers. But today Virgin said it only added about 210,000 net subscribers during the quarter — a huge miss. Virgin blames it on financial prudence, choosing “not to participate in the practice of aggressive handset pricing at the $5.99 level.”
Slightly better news: The company expects to post better-than-anticipated customer retention figures and a smaller full-year net loss. Virgin Mobile expects to report full-year churn (the percentage of subscribers who leave the service each month) of 4.9%, a bit better than the 5.0% it projected after Q3, but a bit worse than the 4.8% it reported in 2006. And Virgin says it trimmed its net loss last year to between $3 million and $6 million, better than its $37 million net loss in 2006.
What does Virgin’s stalled growth say about the prepaid wireless market? It’s certainly getting more crowded — especially as MetroPCS and Leap Wireless expand their cheap, all-you-can-eat service to more cities, and as traditional carriers like AT&T and Verizon Wireless focus more attention on signing up prepaid customers.
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