Sprint Q3 2015 earnings were announced on the 26th of January and results came in much better than expected. Although a significant loss was expected, Sprint (NYSE:S) surprised to the upside with respect to its bottom line, reporting an EPS of -$0.21 compared to estimates of -$0.27. After heavy losses in 2013 and 2014, Sprint’s turnaround seems to be gaining momentum. The carrier reported more than 360,000 postpaid phone customer additions but what really moved the Sprint stock price forward was the huge increase in YoY profits and forward guidance for fiscal year 2015 which was substantially higher than what had already been forecasted.

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Sprint is now guiding Ebitda in the range of $7.7 and $8 billion this year which is almost $1 billion more than originally guided. Sprint stock soared as a result, spiking well past $3 a share but the question remains whether the reported spike in profits in Q3 can be maintained or was it a temporary phenomenon? As the company is still making a loss, we have to report its financials in Ebitda terms (Earnings before interest, tax, depreciation and amortization) which came in at $1.9 billion for its fiscal third quarter ($860 billion higher than Q3 2014). The company’s recent move to lease phones, heavy cost cutting plans, and lower churn rates are all definitely helping Ebitda but there is still significant risk to the downside such as the following.

Many investors are attracted to Sprint because of its seemingly very low valuation. With a present market cap of $11.87 billion, you are looking at a company whose sales are around 2.5 times its market cap which looks extremely cheap on the surface. However, sales dropped by $880 million (almost 10%) last quarter primarily due to the “50% off marketing campaign” the company is doing at present. Personally I don’t see anything damaging with the revenue drop as postpaid customers are normally far more loyal than prepaid so any measure that can increase the company’s postpaid customer base has to be good in the long term. We saw this with the churn rate which dropped to 1.62 meaning 30% less customers left Sprint during the quarter. Therefore expect the marketing campaign to continue beyond the end of February which is the scheduled end date.