Posted by: Aaron Pressman on April 4, 2007
Finally an update on the upcoming IPO of cellular innovator MetroPCS (which will trade under the symbol PCS) and it still looks like a pretty hot deal.
Recall from my post back in January that the company offers mobile phone plans at fixed prices without monthly contracts, overage charges and all the other typical nonsense promulgated by the larger, more established cellular operators. Recall also that the company is growing like a weed. In an updated filing with the SEC yesterday, MetroPCS said it had 3.4 million subscribers at the end of March, 2007, up from 2.9 million just three months earlier and 1.9 million at the end of 2003. Other operational measures looked pretty good as well. Churn declined for the second straight year, revenue per user rose slightly while cost per user was about unchanged. Customer acquisition costs did jump but remain well below the amounts spent by the largest cellular operators.
There’s also a handy map in the new filing showing where the company plans to expand. With eight markets in operation, MetroPCS next rolls out in Los Angeles in 2007 followed by Boston, New York, Philadelphia and Las Vegas in 2008 and 2009.
But the money page of the new filing was the company’s expected share pricing range of $19 to $21. Typically, such a filing indicates that the deal will be priced pretty soon, before market conditions underlying the price range change.
Now we can take a look at relative valuations. If the shares sell at the midpoint of the current range, $20, the company would have a market cap of almost $7 billion with some 346 million shares outstanding after the IPO. Minus the expected $1.2 billion of cash and adding in the $2.6 billion of debt, that’s an enterprise value of almost $8.5 billion.
Ratio wise, the MetroPCS underwriters are obviously looking closely at already-public Leap Wireless (Symbol: LEAP), which has a similar business model and a leaping stock price. MetroPCS had adjusted earnings before interest, taxes, depreciation and amortization of $396 million in 2006 so you have an enterprise value/EBITDA ratio of about 21. Leap’s is 21, according to Yahoo Finance. You also get an EV/revenue ratio of 5.7 compared to 5.1 at Leap.
For more background, I did a piece in the magazine back in February.