Sir Richard Branson has lost $250 million (£124 million) in Virgin Mobile USA after an 85 per cent collapse in the company’s share price since its flotation last year.

Poorer than expected fourth-quarter results caused the mobile phone operator’s share price to drop a further 41 per cent yesterday to close at $2.46 in New York.

Virgin Mobile USA was set up six years ago as a joint venture between Sir Richard’s Virgin Group and Sprint, the US telecoms company. It sells only prepaid mobile phones, which are popular among lower-income consumers. However, analysts are concerned that the economic slowdown could hit these people hardest and discretionary spending on items such as mobiles is likely to stall.

The initial public offering (IPO) for Virgin Mobile USA took place in October and Virgin Group reduced its holding from 42 per cent to 37 per cent. Sir Richard has not sold a share since.

The listing price was $15 a share and in early trading on the first day the stock hit a record of $16.63. However, the price has slid since then and the company now has a market capitalisation of only $130 million. This has reduced the value of Sir Richard’s holding from $295 million to $48 million.

The poor performance of Virgin Mobile USA is an embarrassment for the Virgin Group, which promotes itself as a private equity-style investor. After years of treating stock markets with suspicion, Sir Richard’s asset managers have looked at a number of possible IPOs to release value in the group’s divisions but the rapid drop in value within Virgin Mobile USA may encourage Virgin Group to keep companies private.

Virgin Mobile USA’s poorer than expected fourth-quarter results led to a number of institutions downgrading their forecasts for the company yesterday. James Breen, an analyst with Thomas Weisel Partners, said: “A slowing economy can be particularly tough on these customers as they look to cut costs to stay afloat.”

Virgin Mobile USA lost $14.7 million in the fourth quarter of last year compared with a loss of $44.9 million during the same period a year before.

Service revenue rose 8 per cent to $293.6 million and new customer additions were 958,000, down from 1.29 million after the company refused to cut prices in the run-up to Christmas.

Dan Schulman, the chief executive, said: “No one is more frustrated by the stock prices than we are. We strongly believe we have the right business strategy and value proposition.”

Virgin Mobile USA has also come under increasing pressure from national carriers expanding into its pay-as-you-go space. The company expects revenue in 2008 will be flat and earnings to be between $105 million and $130 million. These forecasts were also lower than Wall Street expectations. Analysts had predicted that full-year revenues would grow by 20 per cent to $1.46 billion with earnings of $142.8 million.

Michael Nelson, an analyst with Stanford Group, said: “The company has consistently, from the IPO to today, lowered its forward expectations and I think a lot of investors are just scratching their heads wondering what has materially changed.”

The Virgin Group is the second-largest shareholder in the mobile company. Sprint is the largest shareholder with a 43 per cent stake, which has declined in value from $343.5 million to $56 million.

Mr Schulman said: “Throughout our five-year operating history, we have driven industry innovation by consistently reinventing our consumer offer. We will continue to simplify and evolve our product and service offers to better serve our more than five million customers.”

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