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Leap “mistakenly” records revenue from nonexistent customers

So it appears that maybe Leap was a bit hasty in rejecting MetroPCS’s bid for a merger. And judging from what we’re reading now, maybe MetroPCS is happy that leap rejected the offer, which is looking more and more generous by the day. And finally, it appears that Leap’s shares, as posited by Metro, were artificially inflated. It was reported Friday afternoon that Leap will have to restate more than three years worth of financial data. According to the company, they “mistakenly recorded revenue from nonexistent customers.” This, we feel, is not going to end well.

Because these financials are related to people who don’t exist, thus don’t pay any actual bills, we expect Leap’s reports to be considerably lower than before. Clearly, this will further devalue the company’s stock, which dropped $19 to $39.10 on Friday. That’s a third of the stock’s overall value. Hopefully they can gain some points over the next few weeks, because their new, reduced earnings statements from three years back are going to hurt them at the time of announcement.

In further detriment to Leap, they announced a staggering 5.2 percent churn rate for the third quarter. Prepaid churn rates are traditionally larger than postpaid — it is, after all, the nature of the business. However, this is much higher than normal. In the end, it means that Leap added just over 36,000 net new users. According to a supposed rep from Boost Mobile, Boost Unlimited added 124,000 customers last quarter. We’re not sure we believe that, but in any case it was surely larger than 36,000.

They expect to right the ship this quarter reducing churn to between 4.4 and 4.7 percent, and adding between 70,000 and 130,000 net customers in the fourth quarter. We wouldn’t be so sure about that. It’s tough to see a company improve after having to reevaluate three years worth of data.

Leap might need the merger with MetroPCS more than ever. But they might have already passed up their best opportunity to do so. Surely Metro’s $4.7 billion bid will be reduced in light of this news.

[The Street]