Latin America’s largest wireless carrier America Movil (AMX) reported results for first-quarter 2010 with earnings per ADS of 82 cents, missing the Zacks Consensus Estimates of 93 cents. Net profit rose 1.9% year-over-year to 16.9 billion pesos ($1.3 billion), helped by foreign exchange gains. However, higher tax liabilities (up 58% year-over-year) have dented bottom-line growth.
Revenue & EBITDA
America Movil, which is controlled by Mexican billionaire Carlos Slim, continues to register double-digit revenue growth as consolidated revenues for the quarter grew 9.8% year-over-year to 98.7 billion pesos ($7.7 billion). However, revenues came below the Zacks Consensus Estimate of $8 billion.
Revenue growth was fueled by healthy services revenues. Data revenues (21.3% of service revenues) soared on the back of increased smartphone penetration and growth in 3G data services. Consolidated EBITDA for the quarter was 42.3 billion pesos ($3.3 billion), up 12.4% year-over-year.
Subscriber Statistics
America Movil registered 5.5 million new wireless subscribers in the quarter. Brazil continues to lead the growth with 1.2 million net additions followed by Mexico with 1.1 million and U.S. (“Tracfone”) with 1 million additions. The carrier exited the quarter with a wireless customer base of 206.4 million, up 10.6% year-over-year. Economic recovery in Brazil and Mexico boosted strong subscriber accretion in the quarter.
Subscriber growth at Tracfone (up 31%) was driven by the newly launched low-priced prepaid wireless services (“Straight Talk”), which are being sold by America Movil through Wal-Mart (WMT) in the U.S. Tracfone is offering a $45 monthly unlimited calling plan, which is aggressively positioned against the plans offered by the other prominent low-cost carriers, such as MetroPCS (PCS), Leap Wireless (LEAP) and Sprint (S).
Opportunities & Challenges
America Movil continues to dominate the Mexican wireless market with a 72% share, facilitated by its well-known brand, extensive distribution network and nationwide coverage. The company remains committed to improving service offerings to its customers as it continues to invest aggressively to expand its GSM-based cellular networks in Latin America.
Momentum is also building up for 3G services, which now cover more than 70% of the population in Latin America. America Movil is one of the principal bidders in the forthcoming wireless spectrum (radio airwaves) auction in Mexico, which will further boost wireless demand in the country as 3G services enable wider access to advanced data applications.
Although America Movil has a commanding position in the Mexican wireless market, it is gradually losing market share to stiff competition from Spanish telecom giant Telefonica (TEF). Competition has intensified in the Mexican wireless market with the entry of the country’s largest media company Grupo Televisa (TV).
To consolidate its position in the fiercely competitive Mexican wireless market, America Movil is acquiring Mexican wireline operator Carso Global Telecom, which has controlling interests in major fixed-line carriers, Telefonos de Mexico (TMX) and Telmex Internacional (TII). Should the acquisition materialize, America Movil will become a full service provider offering converged wireless, wireline voice, broadband and video services.
While we are encouraged by the company’s consistent revenue growth and increased market penetration of 3G data services, we remain cautious on account of competitive and regulatory issues across major markets in Latin America, which may impact subscriber retention moving forward.
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