T-Mobile profit surges on $2.2 billion tax gain

T-Mobile logo is advertised on building sign in Los Angeles
A T-Mobile logo is advertised on a building sign in Los Angeles, California, U.S., May 11, 2017. REUTERS/Mike Blake

February 8, 2018

(Reuters) – T-Mobile US Inc’s <TMUS.O> quarterly profit jumped nearly sevenfold as the No. 3 U.S. wireless carrier recorded a $2.2 billion gain from recent changes in U.S. tax laws, but Wall Street analysts raised questions about the company’s growth.

T-Mobile has been using lower prices and added perks to take market share from larger rivals Verizon Communications Inc <VZ.N> and AT&T Inc <T.N> in a saturated market for wireless services. The company ended merger talks with rival Sprint Corp <S.N> late last year.

In 2018, T-Mobile said it expects to add between 2 million and 3 million subscribers who pay a monthly bill. Analysts called the numbers conservative.

“Management always guides conservatively,” said Jonathan Chaplin, an analyst at New Street Research, in a research note. He noted that in 2017, T-Mobile exceeded the high end of its initial expectations on subscriber additions.

But Craig Moffett, an analyst at MoffettNathanson, said in a note that cable companies’ entry into the wireless market posed concerns about future growth. Comcast Corp <CMCSA.O> already sells mobile service and Charter Communications Inc <CHTR.O> plans to enter the market.

“It is not unreasonable to think that the two cable operators could capture a third of all market growth,” he wrote. “It is not unreasonable to assume that even go-go T-Mobile will see slower subscriber growth.”

Shares were down 2.5 percent to $60.50 in mid-morning trading.

The company said it added 891,000 phone subscribers in the fourth quarter, compared with 933,000 a year earlier.

T-Mobile’s net income was $2.71 billion, or $3.11 per share, in the quarter ended Dec. 31, up from $390 million, or 45 cents a share, a year earlier.

Excluding items, the company earned 48 cents per share.

Revenue rose 5.1 percent to $10.76 billion. Analysts, on average, were expecting revenue of $10.83 billion, according to Thomson Reuters I/B/E/S.

Last month, the wireless carrier said it had closed on its acquisition of Layer3 TV, a startup that has marketed itself as a next-generation cable service, for an undisclosed amount. It has plans to launch a new streaming service this year.

(Reporting by Anjali Athavaley in New York and Supantha Mukherjee in Bengaluru; Editing by Shounak Dasgupta and Marguerita Choy)