Story Stocks^®

Investors disconnect from T-Mobile US (TMUS -10%) today despite the telecom giant posting solid top and bottom-line upside in Q1. TMUS also delivered a record quarter for postpaid net customer additions, registering 1.3 mln in the quarter. At the same time, TMUS topped rivals Verizon (VZ) and AT&T (T) in postpaid phone net adds at 495,000. In fact, TMUS far outpaced the industry during the quarter as VZ saw a net loss of 289,000 postpaid phone customers while AT&T reported 324,000 postpaid phone net adds.

So why are shares selling off? Analysts had higher expectations for TMUS's postpaid phone net adds in Q1. For a stock that has strongly bucked the broader market trend this year, appreciating by around +18% YTD as of yesterday's close, TMUS was in no position to disappoint.

• The net phone add miss is taking the wind out of an otherwise solid Q1 report. TMUS ended the quarter with EPS of $2.58, marking TMUS's fifth consecutive quarter exceeding estimates by at least $0.10. Revenue meanwhile ticked 6.6% higher yr/yr to $20.89 bln, outpacing VZ and AT&T by at least 4 pts. Service revs grew by 5%, with postpaid service revs expanding by 8%.
• While net phone adds were on the lighter side, broadband net adds were healthy at 424,000. TMUS noted that for the 13th quarter straight, it has led the entire broadband industry in customer growth, pointing to its new pricing construct resonating well with customers. On that note, TMUS's ARPU growth in broadband was its highest ever in Q1.
• Looking ahead, TMUS is optimistic. The company expects postpaid phone ARPU growth of at least +1.5 %, up from +1.1% in FY24 and adjusted EBITDA of $33.2-33.7 bln, up $100 mln from its prior forecast. An interesting development rolling out over the coming months is T-Satellite, TMUS's Starlink-based mobile phone network. The company announced that the final launch pricing would be $10 per month for one year for customers regardless of their current mobile phone carrier.

TMUS's Q1 report was solid, especially when stacked against its closest rivals. However, falling short on expected net phone adds in the quarter is enough to trigger a cascade of sell orders today. Additionally, there is the concern that Q1 numbers may already have benefited from a pull-forward effect. Management mentioned that due to potential price hikes related to tariffs, customers may upgrade their phones earlier in the year than usual. If this turns out to be the case, subsequent quarterly results may fall flat. As a result, the market is locking in profits today, not taking the risk and waiting to see how tariffs, prices, and demand shake out over the next few months. This is creating a ripple effect on the telecom industry today, with shares of VZ and AT&T enduring moderate selling pressure.