NEW YORK, March 13 Shares of Virgin Mobile USA VM.N fell as much as 54 percent on Thursday after it issued disappointing subscriber and financial forecasts stemming fears it was being battered by increasing competition as well as weakness in the U.S. economy.
Shares of Virgin, which sold at $15 a share in its initial public offering in October, fell $1.90 to $2.30 after it warned that revenue would not grow this year, and issued disappointing customer growth targets. Several analysts to cut their ratings on the stock.
"With 2 quarters in a row of disappointing guidance we believe that the softening economy and increased competition have eliminated management's ability to forecast its business," said Bear Stearns analyst Phil Cusick in a client note.
At such a low share price, Cusick, who downgraded the stock to "underperform" from "peer perform", said there was some speculation that Virgin Mobile USA could be bought, but he said that this would be unlikely.
"We see no reason any competitor would buy Virgin Mobile's equity," Cusick said.
Shares in No. 3 U.S. mobile service Sprint Nextel (S.N), which has a roughly 11 percent stake in Virgin Mobile USA and rents it network space, were down 22 cents or 3.5 percent to $6 after the news. Sprint is already struggling with steep customer losses for its wireless service.
Virgin Mobile USA, which is roughly 35 percent owned by Richard Branson's Virgin Group [VA.UL], offers prepaid mobile services to young people who pay for calls in advance rather than via monthly bills.
It warned that current quarter subscriber growth would fall to a range of 5,000 to 20,000, down from net additions of 210,000 customers for the fourth quarter.
Stanford Group analyst Michael Nelson said he had expected Virgin to add 130,000 customers in the first quarter.
"We believe Virgin Mobile is losing share of the prepaid market, owing to intense competition from national and regional carriers," said Nelson, who kept his sell rating on the stock.
Large rivals such as Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L), have recently been promoting prepaid services more aggressively as growth in monthly bill paying customers is declining.
"Additionally, we believe the slowing macroeconomic environment is leading to lower minute usage for the company's pay-per-minute plans," Nelson said.
Virgin's warning that revenue would not grow this year compared with analyst estimates for 20 percent revenue growth.
Its 2008 forecast for adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $105 million to $130 million compared with average analyst estimates for EBITDA of $142.8 million
Merrill Lynch cut its rating of the stock to "sell" from "neutral" and another firm Raymond James cut its rating of the company to "market perform" from "outperform.