IDC: Prepaid, Data Key to Q1 Growth

Everyone in the industry knows that prepaid subscriptions have grown in popularity thanks to miserable economic conditions.

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Despite reflecting a widening loss, Sprint Nextel's(S Quote) first-quarter results offer some upside for investors, even in a tough economy.

"Sprint hit its marks in Q1," wrote Craig Moffett, an analyst at Bernstein Research, explaining that the firm added 764,000 prepaid customers and enjoyed better-than-expected postpaid numbers. "Their postpaid loss [of 1.25 million customers] was only modestly worse that the 1.09 million sell-side consensus," he explained.

The analyst maintained his "market perform" rating and $2 Sprint price target, despite some major changes in the telecom market.

Customers who pay a monthly bill, otherwise known as postpaid customers, for example, are shifting over to prepaid pricing in droves.

"There's no question that there's a movement in this country towards prepaid," said Sprint CEO Dan Hesse during a conference call, adding that his firm may expand its prepaid business. "We have some offers we're evaluating -- we have not made any decisions yet on what we will do."

Investors reacted positively to Sprint's results, and the company's shares surged 33 cents, or 7.1%, to $5 in Thursday trading.

Overall Bernstein Research's Moffett feels that Sprint's financial performance was "relatively good", although revenue of $8.21 billion came in just below analysts' estimate. Average revenue per unit (ARPU) was slightly better than expected for Sprint's postpaid business but slightly worse than anticipated for prepaid, he said.