Sunrise Communications (NASDAQ:SNRE) is a Swiss mobile telephone, TV and internet service provider. Shares of the telecom company have dropped 8% in the past month, though they are still in moderately positive territory for the year.
Why did Sunrise Communications drop, and why has a billionaire snapped up shares? More importantly, does the stock present a good opportunity to buy on the dip while prices remain low?
A Look at Sunrise’s Most Recent Earnings Report
Although SNRE shares began declining well before the company’s Q4 earnings report dropped, it may still be worth taking a look at the report to see what trends Sunrise shareholders are looking at. The most obviously negative piece of the report was a 0.6% decline in total revenues, a slight but worrying decline for those who own stock in the company.
This drop in revenue, however, was largely offset by other, more positive trends in the company’s overall performance. To begin with, the company’s free cash flow rose by 2.8% in spite of the decline in revenues. Moreover, the company was able to grow its customer base significantly by adding 159,000 postpaid mobile customers and 31,000 internet accounts.
All told, it’s difficult to fully blame Sunrise’s recent earnings report for the drop in the stock. Not only did investors begin selling SNRE before the report was released, but management also avoided any serious missteps during the quarter.
With that said, the Q4 report also wasn’t strong enough to cause shares to regain the ground they had lost. The stock also sustained a lower move after the report came out, demonstrating that investors were less than thrilled with the results.
Weaker Growth and Higher Costs Weighing on SNRE
While the revenue decline reported in Q4 is very likely responsible for some of the downward pressure on the stock right now, it seems clear that we must look to other factors for a complete explanation of the stock’s slide. A sensible place to begin might be the volatile macro environment.
A quick glance at Sunrise’s chart shows that the stock began to come off of its most recent high in the first week of February. This timing may be significant, as at the same time global stock markets were starting to reel on fears of US tariffs negatively affecting global economic growth. Asian and European stock markets both sold off as the potential for weaker growth and higher inflation was priced into global equities.
Subsequent rhetoric from the White House on tariffs and trade has done little to help the situation. Although Sunrise Communications isn’t an exporter that would be directly affected by tariffs, weaker growth in its home market and higher prevailing costs for telecom hardware could both impact the company going forward.
Has the Bull Case on SNRE Eroded?
Despite the fact that the stock has gone through a difficult month, several prominent investors still own it. Perhaps most notable among these is Stanley Druckenmiller, who bought 133,000 shares valued at $5.7 million late last year.
Although Sunrise Communications makes up just 0.15% of Druckenmiller’s portfolio, the fact that the telecom company attracted his attention is worth taking note of. Druckenmiller tends to be a macro-driven investor, and his decision to add a stake in SNRE to his portfolio may reflect positive views on the long-term outlook for the Swiss economy and its telecom industry.
In addition to an expanding customer base and a slight increase in cash flows in the last quarter, there’s also a decent long-term case to be made for Sunrise. The Swiss economy grew 0.5% in Q4, beating out previous expectations by economists who believed that it would only expand by 0.2%.
Though performance was significantly boosted by positive growth among pharmaceutical and chemical companies, the fact that Sunrise’s home market is proving more resilient than previously expected could benefit SNRE share price when growth reignites.
With that said, there could be some concerns around the bullish thesis for Sunrise’s growth. To begin with, the company isn’t dominant in its market and may not have a particularly strong moat. Sunrise competes with Swisscom, the largest telecom provider in Switzerland. Swisscom has a market share in excess of 50%, with the remainder of the market divided up among smaller players like Sunrise.
51% of Swisscom is also directly owned by the Swiss government, giving it structural advantages that may make it extremely difficult for Sunrise to compete with it on an even footing. Data gathered from 2016 to 2019 and released in 2023 showed virtually no year-to-year change in the market shares of Swisscom and Sunrise. While Sunrise is Swisscom’s second-placed competitor, it consistently captures less than half of Swisscom’s market share.
Why Did SNRE Stock Drop?
Higher costs and slower revenue growth have caused SNRE stock to drop. On its own, no one factor may fully explain the selloff Sunrise Communications has been through in recent weeks. Putting the whole picture together, though, a fairly clear line of reasoning begins to take shape.
Sunrise is operating in what are already challenging enough economic times. Swisscom’s dominant position in the Swiss market, meanwhile, makes it difficult for Sunrise to deliver the kind of stable long-term growth investors typically want to see.
These macro and competitive challenges were likely compounded by the Q4 earnings report which, despite several positive features, showed weakening revenues that may have confirmed investor worries. The forward guidance for 2025 also suggested flat revenues with a greater focus on paying down debt, suggesting that it could be some time before Sunrise Communications returns to active growth.
Overall, SNRE may be a stock to hold for those who already own it, as some of the developments reported in Q4 were relatively positive and could set the stage for an eventual recovery. New investors, however, may not find enough to like in Sunrise Communications.
As a company with stagnant revenues competing with a government-owned dominant service provider in a challenging macro environment, there could be a few too many risks in SNRE to make it a buy at the moment.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
