Vivo Participacoes (VIV), the largest wireless operator in Brazil, reported fourth quarter earnings per ADS of $1.27 strongly surpassing the Zacks Consensus Estimate of 87 cents. Net income jumped more than four fold to R$864.2 million ($507.9 million) in the quarter piggy-backing on higher revenues.
In fiscal 2010, net income shot up 115.7% year over year to R$1,893.8 million ($1,072.6 million).
Consolidated EBITDA climbed 20.9% year over year to R$1,677.7 million ($986 million). The improvement can be credited to continued growth in service revenues, especially data and voice revenue, as well as efficient subsidy and sales commission control.
In 2010, consolidated EBITDA increased 11.6% year over year to R$5,831.8 million ($3,303 million).
Revenue
Vivo, controlled by Spanish telecom giant Telefonica (TEF), posted net revenue of R$4,863 million ($2,858 million) in the reported quarter, up 10.1% year over year, attributable primarily to sustained growth in data and value-added services (VAS) revenues partially offset by higher handset sales. Reported revenue breezed past the Zacks Consensus Estimate of $1,274 million, reflecting strong consumer demand in Brazil.
Net service revenue climbed 12.5% year over year to R$4,566.9 million ($2,684 million) driven by nearly 48% year-over-year growth in data and VAS revenues (20.7% of net service revenue) on an expansion in the 3G mobile customer base. Mobile Internet revenues shot up 65.4% year over year, representing 53.2% of data and VAS revenues. Higher incentives through smartphones and modems led to the impressive growth in mobile Internet revenues.
Access and usage revenues (42.7% of net service revenue) increased 12.3% year over year to R$1,949 million ($1,145 million), owing to increased subscribers, more prepaid services as well as higher voice service and SMS consumption.
Network usage revenues (34.8% of net service revenue) dipped 1.2% year over year to R$1,589 million ($934 million).
Other services (1.8% of net service revenue) upped 7.7% year over year to R$81.4 million ($47.8 million).
Handset revenues plunged 16.7% year over year to R$296.1 million ($174 million) in the reported quarter.
Subscriber, ARPU & Churn
Vivo gained 2.6 million subscribers in the fourth quarter, bringing its total customer base to 60.3 million (up 16.5% year over year). Vivo maintained its leadership in terms of net addition with roughly 22.5% market share, beating its biggest rival, America Movil’s (AMX) Claro. The company continues to dominate the Brazilian wireless market, exiting the quarter with 29.71% overall market share and a 35.24% share in the post-paid segment.
Average revenue per user (ARPU) dropped 4.4% year over year to R$25.9 ($15.2) due to dilution caused mainly by the presence of multiple SIM cards in the market. Incoming ARPU declined 15.3% while Outgoing ARPU increased 3.1% year over year. Churn (customer switch) deteriorated to 2.7% from 2.5% in the year-ago quarter.
Cash, Debt & CAPEX
Vivo exited fiscal 2010 with cash and cash equivalents of R$2.1 billion compared with R$1.3 billion at the end of 2009. The company’s restructuring efforts are helping it to gain synergies and reduce net debt, which plunged 54.4% year over year to R$1.7 billion.
Vivo generated R$1.5 billion of cash from operating activities in the fourth quarter compared with R$1.1 billion in the year-ago quarter. The company spent R$996 million in capital expenditure (CAPEX), up 48.5% year over year. A significant portion of CAPEX was directed toward the expansion of network capacity and information technology.
Our Analysis
Vivo is benefiting from favorable trends in the Brazilian wireless market, its new operations in the northeastern region and expanded coverage for its 3G network.The expansion of the 3G network will enhance additional wireless data revenue growth. Vivo’s growth trends are expected to remain positive in the foreseeable future given the rapid economic recovery in Brazil. Moreover, the company is reducing its debt impressively and improving its balance sheet.
Hence, we are currently maintaining our long-term Outperform recommendation on Vivo supported by the Zacks #2 (Buy) Rank.
AMER MOVIL-ADR (AMX): Free Stock Analysis Report
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VIVO PARTICIPAC (VIV): Free Stock Analysis Report
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