Take a good look, Sprint Nextel shareholders. This is your future for at least the next two years -- and that's if things go according to plan.
The No. 3 U.S. wireless carrier on Wednesday reported a fourth-quarter loss of $1.3 billion, or 43 cents a share, 40% more than the loss of 929 million, or 31 cents a share, in the year-ago quarter.
Shares of Sprint (NYSE: S) fell 4 cents in Wednesday trading, or 1.6%, to 2.41. The stock's 52-week low of 2.10 set on January 31 also was the lowest price for Sprint shares since January 2009.
Contributing to the fourth-quarter loss was Sprint's subsidy expenses (all carriers sell smartphones at a loss to attract subscribers, making up the money with service contracts and extras) of $1.7 billion, up from last year's $1.2 billion thanks to Sprint's huge iPhone gamble.
Sprint announced last October that it essentially was betting the company's future on the iPhone, signing a deal to purchase 30.5 million of the Apple smartphones at a total cost of $20 billion, much of that coming from the $500 subsidy Sprint is eating for each iPhone it sells.
It was a strategy born of desperation. With only 14.8 million prepaid subscribers, Sprint is a distant third behind Verizon and AT&T, each of which has slightly more than 100 million prepaid subscribers.
Further, both AT&T and Verizon had the iPhone, leaving Sprint as the lone national carrier not selling the smartphone with the highest customer retention rate.
But Sprint warned at the time that it expected to continue losing money at least through 2013. For shareholders long on Sprint who already have lived through five straight years of losses, this undoubtedly was thrilling news. But when your options are 1) Cash out at a big loss (assuming you bought, say, before 2008) and 2) ride out a couple more years to see if the hail Mary works, what are you going to do?
Hang on and look for signs that Sprint's iPhone strategy is working (or isn't), is what. Unfortunately, it's really too early to tell. This is the first quarterly report since Sprint began selling iPhones.
What we do know so far is that Sprint sold 1.8 million of the Apple smartphones in the fourth quarter, which CEO Dan Hesse told the Wall Street Journal was "significantly higher than what we had assumed in the business case."
It's also a lot fewer than the 7.6 million and 4.3 million iPhones sold in Q4 by AT&T and Verizon, respectively. It's also slightly lower than the 1.9 million predicted by some analysts.
Still, Sprint reported that 40% of its iPhone subscribers were new customers, and that it added a 1.6 million net subscriber additions in Q4, the best since 2005. More customers is the goal of the iPhone strategy.
Another positive metric is the rise in ARPU (average revenue per user) to $58.59 from $55.26 in last year's fourth quarter.
But for shareholders, sifting through one quarter's results for evidence of whether Sprint's iPhone strategy is working is pointless. You're either on board by now or you're not, and if you are, you can't flinch. It's going to get worse before it gets better.
Assuming it gets better.