Could Leap's low operating margin force its hand?

Leap Wireless, parent company of Cricket. The company currently has a 1.4 percent operating margin, the lowest in the telecom industry. If you’re not familiar with operating margin, you can check out the definition at Investopedia. It is basically the operating income divided by net sales. That means that it has plenty invested in its nationwide roaming plan, which it thinks can attract customers in its primary markets. Leap has also shown sales growth that doesn’t equal its biggest rival MetroPCS. While Leap has grown its sales 21.7 percent over the past 12 months, Metro outpaces them at 26.5 percent. Metro also has a much higher operating margin, 15.2 percent. These financial issues, combined with Metro’s larger customer base, is why we often see merger ideas that involve Metro acquiring Leap and not the other way around. Again, both companies have taken measures to retain their independence, and we could see that last throughout 2010. But if Leap continues to operate at such a low margin, despite the efforts it has made so far this year, we could see talks rekindled in early 2011. Which would put us in the same spot as the beginning of 2010. Who says history doesn’t repeat itself?]]>