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.