Earnings: Virgin Mobile Reports First Full Year Of Profits In 2007; Tough Economic Times Ahead

Virgin Mobile (NYSE: VM) reported Q4 and 2007 results today, saying it recorded its first full-year of profits. In 2007, it made $4.2 million, turning around from a loss of $36.9 million in the year ago period. Revenues for the full year totaled $1.3 billion, increasing 18.2 percent compared to 2006. However, the positive results were hampered by the fact that the company did not add as many customers in the fourth quarter as they had expected. The company's stock fell in after-hours trading to $3.25 a share from today's market close of $4.20 a share.

As Virgin said in February, it added fewer customers than it expected. Gross customer additions in Q4 totaled 958,000, falling from 1,294,000 in the year ago period. The company said the decline was primarily due to the decision by the company not to participate aggressive handset pricing as other competitors in the holiday season. "They were lighter than our increased projections, but were a direct result not to participate in what we believe is irrational handset pricing," said Dan Schulman, Virgin's CEO, during the company's call. Schulman said he is confident that was the right decision to make given that he's seeing the compeitiors now reverse that aggressive pricing in the first quarter.

He also said that if handsets cost more, the consumer is likely to spend more. For instance, the company's Wild Card handset, which has a dual-screen and a full keyboard and high resolution camera, is a significant contributor to revenue growth with data usage more than triple that of their average subscriber.

Release. Investor Call.

From the call:

-- The economy: The company said its seeing softening, but believes its plans may be attractive in these economic times. However, customers may also reduce usage. Therefore, the company expects net service revenues for 2008 to be similar to 2007. In Q1, it expects net service revenues of up to $303 million and to add between 5,000 and 20,000 net customers.

-- Projected earnings: In 2008, expects adjusted EBITDA of $105 to $130 million (compared to $99 million in 2007). Expects earnings per share to jump to 19 to 35 cents a share in 2008, compared to earnings of 6 cents a share in 2007 (which takes into account the shares issued during the company's October IPO).

-- New pricing plans: Is launching new pricing plans to convert pre-paid users over to monthly users to increase revenues. "In first part of the year, our revenues are coming down because we've seen pre-paid usage coming down. We are continuing to project that because we think it's the prudent to do," Schulman said. "As we go through the year, our new offers, we believe, will attract a different profile of customers. It is our initial experience that is playing out as we hoped, but it's very early." The new plans will be fully deployed by the end of Q2.

-- Unlimited voice plans: "First of all, I'm sure this is obvoius to all of you that the $99 unlimited plans announced by the big four don't affect us and they aren't aimed at us," Schulman said. "The mid-tier market has always been quite competitive and already has unlimited players...We believe we have the most compelling proposition in the prepaid industry for our target market."

-- New handsets: Will launch its first EV-DO handset this year. 

Related

• Virgin Mobile USA Reports Early Q4 Results; Fails To Add Expected Subs During Busy Holiday Season