Mobile IPOs: Virgin vs MetroPCS

Written by Katie Fehrenbacher
Wednesday, May 2, 2007 at 10:21 AM PT | 2 comments

Alternative cellular brands are storming the public markets. In April it was flat-rate carrier MetroPCS, which raised over a billion dollars in an IPO, while rival Leap Wireless is trading high at $77.27 per share. Now Virgin Mobile, jointly owned by Richard Branson’s Virgin Group and Sprint, filed for its own IPO, and is reportedly seeking to raise up to $100 million.

Will Virgin Mobile’s public move match the success of MetroPCS and Leap Wireless? Not likely. Virgin uses the MVNO model, running service over Sprint’s network and doesn’t own its own spectrum or retail outlets. The company is also still not profitable, which is something that no doubt boosted MetroPCS’s stock, and has an average revenue per user (ARPU) that is roughly half of MetroPCS’s. Virgin Mobile has been rumored to IPO for years and Business Week even wrote in February that the clock was ticking back then. Here’s a primer on the contrasts between Virgin Mobile and MetroPCS:

Virgin Mobile

  • Subscribers: 4.88 million
  • IPO: reportedly raising up to $100 million (likely to change)
  • Launched: July 2002
  • Annual revenues 2006: $1.1 billion
  • Net loss: $36.7 million
  • churn 4.8%
  • ARPU: $21.48 (monthly)
  • CPGA: $120.55 (cost of acquiring a new customer)
  • Business Model: MVNO, runs over Sprint. Doesn’t own spectrum or retail outlets.

MetroPCS:

  • Subscribers: 3.4 million
  • IPO: Raised $1.15 billion
  • Launched: 2002
  • Annual revenue 2006: $1.55 billion
  • Net income: $53.81 million
  • Churn: 4.6%
  • ARPU: $42.98 (monthly)
  • CPGA: $117.58 (cost of acquiring a new customer)
  • Business Model: The company owns licenses that cover a population of 140 million, and recently spent $1.4 billion on licenses
| Sphere | Topic: Mobile |

Katie - thanks for the article. It will be interesting to see if MVNOs can really be profitable. Everyone is enamored with them because they don’t have high fixed costs, but they also have fewer benefits to scale and can’t always leverage the spectrum provided to them for higher-value services. Virgin’s low ARPU demonstrates that.

ESPN Mobile, another MVNO, already bombed last year. It’s still to be seen where Helio and Amp’d end up, but if Virgin Mobile is any indication, there’s not a lot of money to be made here. That being said, Helio and Amp’d have far higher ARPUs but with far smaller subscription bases. Both have spent hundreds of millions of dollars to get off the ground - mostly on marketing I would think.

It’s still great for the customers though.

Jay (living in First Life) on May 2nd, 2007 at 12:13 pm - #

I think the S1 will cause sleepless nights at other MVNOs. ESPN closed because they could not get to scale. Virgin is showing that even at scale this is a horrible business. $1.1B in rev and still no profit.

The other metrics are even scarier:
-3MM Gross Additions to generate 729K Net Subscribers in 2006 vs. 2.3MM Gross to create 1.4M Net in 2004. Basically they have to bring in more and more customers to keep a smaller number of net subscribers. The addressable market is shrinking and competition is increasing.
-Steady increase in churn it’s only getting worse as market gets more intense.
-I don’t understand the Virgin vs Blue Bottle holdings nonsense, but between them they are holding $1B in debt and losses! They may generate a profit in 2007 but a long way to break even!
-I usually don’t care about executive renumeration, but the management team seems to be very well paid for a company that’s bled money for 5 years.

Very scary business indeed!

Scott T on May 3rd, 2007 at 10:13 am - #

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