Latin American telecom giant America Movil (AMX) reported results for fourth-quarter 2009 with earnings per ADS of 61 cents missing the Zacks Consensus Estimates of 85 cents while falling 13.6% from the year-ago earnings per ADS of 71 cents.
 
Net profit slipped 17.2% year over year to 12.96 billion pesos ($992 million) on account of higher taxes. America Movil, which is controlled by Mexican billionaire Carlos Slim, had a tax expense of 7.46 billion pesos ($572 million) in the quarter compared to a gain of 394 million pesos ($30 million) in the year-ago quarter. Earnings per ADS of $3.19 for full year 2009 also came below the Zacks Consensus Estimate of $3.45. Currently, the Zacks Consensus Estimate for 2010 is $3.86.
 
Revenue & EBITDA
 
Latin America’s largest wireless carrier continues to register double-digit revenue growth as consolidated revenues for the quarter grew 13.4% year over year to 107.1 billion pesos ($8.2 billion), beating the Zacks Consensus Estimate of $7.7 billion.
 
Revenue growth was fuelled by healthy services revenue that surged 14.8% year-over-year. Data revenue soared 48.7% year-over-year driven by increased smartphone penetration and a 49% growth in 3G data services. Revenues for full year 2009 were 394.7 billion pesos ($29 billion), in line with the Zacks Consensus Estimate.
 
Consolidated EBITDA for the quarter was 40.8 billion pesos ($3.1 billion), up 16.9% year over year. EBITDA margin was 38.1%, representing an annualized improvement.
 
Subscriber Trend
 
Disappointing earnings for the quarter was partly offset by healthy subscriber growth. America Movil registered 6.6 million new wireless subscribers in the fourth quarter, reflecting a significant improvement from 4 million in the previous quarter.
 
Brazil continues to lead the growth with 2.1 million net additions followed by US with 1.2 million and Mexico with 807,000 additions. Rapid economic recovery in Brazil has boosted strong subscriber accretion in the quarter. The company exited 2009 with a wireless customer base of 201 million, up 10% year over year. Mexico and Brazil, two key markets, had total subscribers of 59.2 million and 44.4 million, respectively. Fixed-line customer base reached 3.8 million, down 1.4% year over year.
                    
Results by Key Markets
 
Revenues from Mexico, America Movil’s home turf, increased 8.4% year over year to 38.3 billion pesos ($2.9 billion) in the quarter driven by strong data revenue which grew by 39%. Mexican ARPU (average revenue per user) improved both sequentially and year over year on the back of healthy data growth. However, churn (customer switch) increased from the year-ago quarter and previous quarter.
 
Revenues from Brazilian operation increased 3.2% year over year while ARPU fell 8.7% from the year-ago quarter. Churn in Brazil increased from the year-ago quarter. Revenues from Argentina, Paraguay and Uruguay cluster increased 21% year over year, boosted by healthy data service usage by customers. ARPU increased 11.6% from the year-ago quarter while churn improved year over year. America Movil’s US operation (Tracfone) posted 29.5% year-over-year revenue growth in the quarter.
 
Opportunities & Challenges
 
America Movil continues to dominate the Mexican wireless market with roughly 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 will be 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.
 
Opportunities in wireless were boosted by the launch of low priced prepaid wireless services (“Straight Talk”) in 2009, which are being sold by America Movil through Wal-Mart (WMT) in the US. Tracfone is currently 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).
 
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 is heating up in the Mexican mobile space as the country’s largest media company Grupo Televisa (TV) is set to offer wireless services and bundled offerings.
 
In an effort to consolidate its position in the fiercely competitive Mexican wireless market, America Movil is planning to fully acquire 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 proposed acquisition materialize, America Movil will become a full service provider offering converged wireless, wireline voice, broadband and video services to more than 250 million subscribers.
 
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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