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Budget operators keep shocking Wall Street

It was another quarter of shocks and surprises for small budget wireless operators offering cheap mobile plans. AT&T (T) and Verizon Wireless (VZ) chugged along during the spring quarter, but MetroPCS (PCS) and LEAP Wireless (LEAP) put up satisfyingly entertaining earnings spectacles.

Over the past four quarters, MetroPCS has missed its earnings consensus by 17%, beaten it by 56%, missed it by 65% and then beaten it by 94%. Comically, Wall Street estimates are getting worse with each passing quarter as analysts try to correct their modeling, only to zig when MetroPCS zags and vice versa.

On July 26th, MetroPCS’s share price surged by a massive 37% as the company reported earnings of $0.41 per share – far above consensus expectation of $0.22. Cutting sales promotions and losing nearly 190,000 net subscribers helped boost profitability. Investors used to hanker after strong subscriber growth — now they want to be told that customer acquisition costs won’t spiral out of control.

And that is why LEAP Wireless plunged by 19% on August 7th. While MetroPCS’s subscriber loss was within ballpark of expectations, the LEAP loss of 289,000 subs was quadruple analysts’ expectations. In addition, LEAP’s ARPU shrunk for the first time since autumn 2010 and its spring revenue missed consensus by $50 million.

Why is Wall Street getting so flustered by the budget operators’ numbers? It is becoming evident that nobody knows how to model these damn things, that’s why. The share price of LEAP has crashed from $11.30 to $4.80 in less than half a year and MetroPCS has been only somewhat less volatile.

In the summer of 2011, everyone got excited about the prospect of budget carriers offering prepaid smartphones to consumers starved of cheaper alternatives to AT&T and Verizon. Only it turned out that Americans weren’t all that starved for prepaid smartphone plans. Most were quite happy forking over $100 a month to one of the nation’s top two operators.

Budget carriers had to jack up their marketing costs, Wall Street freaked, expectations plummeted, short interest spiked. And the budget companies keep delivering surprising quarterly reports – missing sub consensus by a mile or beating newly lowered profitability expectations big time. Earnings models have to be revised sharply every quarter because nobody quite knows how to game the U.S. operator competition.

One thing is certain: the arrival of the next iPhone, the debut of new Virgin/Boost Mobile iPhone marketing plans and the gutsy new pricing gambits of AT&T and Verizon will create extra curve balls come autumn and winter. Are Virgin and Boost going to have any real impact? Will American consumers finally start getting ambivalent about Verizon now that its cheapest smartphone plan starts at $90?

Over the next couple of quarters, MetroPCS and LEAP Wireless are quite likely to remain among the most volatile names in the stock market.

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.