How Well Does Leap Wireless Have To Do On Earnings?

Leap Wireless (LEAP-NASDAQ) may have just found itself in a harder spot ahead of earnings after today’s close.  With the Chinese 8.8% drop and the big selling we have seen this morning it is probably a good guess that traders will be much more critical on hi-beta names. 

Wall Street is expecting -$0.35 EPS and revenues of $316 million.  If it gives guidance the street is hoping for -$0.15 & $347 million in the coming quarter.  The average analyst price target from the brokers that follow it was roughly $67.50 as of last week.  Shares are down 1% at $64.04 today; and the 52-week trading range is $39.59 to $67.44.  The chart has not seen any notable break to its up-trend, and itappears as though options traders are only expecting a move of up to$2.00 in either direction as of 10:40 AM.  If you use the same "revenue per user" as the prior quarter you get an implied street estimate of roughly 2.37 million total subscribers.

The Chinese stocks were part of the reason for the drop in early pre-market trading, but the crummy durable goods and weaker auto and retail expectations added more fuel to the fire.  We also had record margin borrowing and an incredibly low VIX reading we noted over the weekend.  Greenspan coming out of the quiet crowd commenting about the possibility of a recession is also there on traders’ minds.

The company gave some basic 2007 targets at a presentation back in January: $380 to $450 million OIBDA and $240 to $310 million in Cap-Ex; also expects "at or near" leveraged free cash flow break-even in 2007 before FCC auction expenses.  As of the third quarter it had 161,688 net subscriber additions and a 4.3% churn rate with average revenue per user at $44.39.  Its total subscribers were 1.966 million as of the end of Q3.

Jon C. Ogg
February 27, 2007

Jon Ogg is a partner in 24/7 Wall St., LLC and he can be reached at [email protected]; he does not own securities in the companies he covers.