Despite shrill articles such as this one from Bloomberg, the market probably has the reaction just about right which is that none of the stocks in question moved a whole lot on this announcement. Apple (AAPL) ran up in the last couple of months in anticipation of this, but didn't do a whole lot today. Neither did Verizon (VZ), AT&T (T), Motorola (MMI) or anyone else for that matter. I think that's because frankly there isn't the iPhone frenzy there once was and that those with existing contracts won't be that willing, or able, to switch immediately.
The article's assertion that half of Verizon users will switch from Android to iPhone seems a little ridiculous. I think that this was a classic case of an analyst not knowing so they just made something up, and something not particularly plausible. The problem that iPhone has in the long run against Android is that the Android universe of phones offers customers features in whatever configuration they might want. Additionally, in terms of hardware capabilities, by the next iteration of iPhone Apple will have to be playing catch-up big time against the new vanguard of Android phones.
There will be switchers, sure, but I just don't get the sense that the bulk of Android users are just clamoring to switch. No doubt, many AT&T users will switch, but that's a different story.
Showing posts with label VZ. Show all posts
Showing posts with label VZ. Show all posts
Tuesday, January 11, 2011
Saturday, July 24, 2010
What's Next for Millicom (MICC)?
Several of my friends know that I am very excited about the prospects for Millicom (MICC). For the uninitiated, MICC is a Luxembourgian (though Swedish in origin) provider of cellular phone service in developing countries ranging from Costa Rica to the DRC in Africa. Africa, incidentally, is far and away the largest driver of sales growth in recent quarters. It also has a cable business in some central American countries, but that is not its predominant product line.
Most of what MICC provides is pay as you go cellular service, which fits developing markets well. Rather than having smartphones that even a middle class American might go broke on, they distribute cheap, damn near disposable phones in these markets and allow their customers to purchase however many minutes they want. In countries where landlines are almost non-existent and they went straight to cell phones this makes a lot of sense. Phones are used on a limited basis in most of these countries, often only for essential purposes. With low incomes, paying a recurring monthly charge for service you are not using makes little sense.
In any case, after a brush with bankruptcy in the early 2000s, MICC revamped and has been growing at a good solid clip ever since. Revenues have more than doubled in the last four years and will likely nearly double again in the next five. For all of the growth they have seen, the company still only had just over $3.4 billion in revenue in 2009. This isn't a great comparison, but just for the sake of something to compare to, Verizon (VZ) had revenues of $107 billion. Operating margins have also improved from 75% in 2006 to 82% in 2009. Net profits have been a little hard to interpret due to many acquisitions, divestitures, and their associated write-downs and one time profit gains. Based on operating profits though, there has been steady improvement.
The balance sheet is not overly leveraged with its cash position growing in line with its long term debt. This is important from the standpoint that if there is, God forbid, another financial shock like 2008, MICC is not vulnerable to a financing crunch. I've become more cognizant of that as an issue with companies since the crisis.
The recent earnings report, released just this last Tuesday was a thing of beauty even though on the surface it looked like a bad miss. The market realized this too, and the stock was notably higher by the end of the day after selling off in the morning. Revenue growth of 14% (11% after currency adjustments) and earnings growth of 17%. Customer base growth was near 20%, which is a promising sign for future revenue and earnings growth. All of this leads to a stock that trades at a modest 13.4x forward earnings. That's hardly steep and in normal times with their growth rates would be a steal.
As mentioned briefly earlier, the growth rates in Africa are astounding. Fully 3/4s of the subscriber growth came from Africa in the last quarter, partly driven by depressed numbers elsewhere from divestitures, but still this is an amazing thing. Africa has averaged just shy of a million new customers a quarter in the last three quarters.
Now, they do have competition for these rapidly growing markets, but market share has been steadily ticking up. It's always a good thing to have a growing portion of a rapidly expanding pie. The African numbers looked like a disappointment, but actually the market share number took a hit from entry into Rwanda since they had no presence there before. Adjusting for that, market share is growing in Africa.
All that said, the outlook for MICC looks promising and I think this is reflected by the fact that the stock has held up quite well during the recent sell off in the broad market the past few months and its gains when the market rises tend to be greater than the overall market. That said, it is a lightly traded stock at less than a million shares a day and often less than 500,000. It can be easily moved in a bad day and drop $4-6 a share. If you cannot stomach that, it might not be right for you. Still, opportunities to play growth in Africa directly are rare, even when they are a little volatile.
Most of what MICC provides is pay as you go cellular service, which fits developing markets well. Rather than having smartphones that even a middle class American might go broke on, they distribute cheap, damn near disposable phones in these markets and allow their customers to purchase however many minutes they want. In countries where landlines are almost non-existent and they went straight to cell phones this makes a lot of sense. Phones are used on a limited basis in most of these countries, often only for essential purposes. With low incomes, paying a recurring monthly charge for service you are not using makes little sense.
In any case, after a brush with bankruptcy in the early 2000s, MICC revamped and has been growing at a good solid clip ever since. Revenues have more than doubled in the last four years and will likely nearly double again in the next five. For all of the growth they have seen, the company still only had just over $3.4 billion in revenue in 2009. This isn't a great comparison, but just for the sake of something to compare to, Verizon (VZ) had revenues of $107 billion. Operating margins have also improved from 75% in 2006 to 82% in 2009. Net profits have been a little hard to interpret due to many acquisitions, divestitures, and their associated write-downs and one time profit gains. Based on operating profits though, there has been steady improvement.
The balance sheet is not overly leveraged with its cash position growing in line with its long term debt. This is important from the standpoint that if there is, God forbid, another financial shock like 2008, MICC is not vulnerable to a financing crunch. I've become more cognizant of that as an issue with companies since the crisis.
The recent earnings report, released just this last Tuesday was a thing of beauty even though on the surface it looked like a bad miss. The market realized this too, and the stock was notably higher by the end of the day after selling off in the morning. Revenue growth of 14% (11% after currency adjustments) and earnings growth of 17%. Customer base growth was near 20%, which is a promising sign for future revenue and earnings growth. All of this leads to a stock that trades at a modest 13.4x forward earnings. That's hardly steep and in normal times with their growth rates would be a steal.
As mentioned briefly earlier, the growth rates in Africa are astounding. Fully 3/4s of the subscriber growth came from Africa in the last quarter, partly driven by depressed numbers elsewhere from divestitures, but still this is an amazing thing. Africa has averaged just shy of a million new customers a quarter in the last three quarters.
Now, they do have competition for these rapidly growing markets, but market share has been steadily ticking up. It's always a good thing to have a growing portion of a rapidly expanding pie. The African numbers looked like a disappointment, but actually the market share number took a hit from entry into Rwanda since they had no presence there before. Adjusting for that, market share is growing in Africa.
All that said, the outlook for MICC looks promising and I think this is reflected by the fact that the stock has held up quite well during the recent sell off in the broad market the past few months and its gains when the market rises tend to be greater than the overall market. That said, it is a lightly traded stock at less than a million shares a day and often less than 500,000. It can be easily moved in a bad day and drop $4-6 a share. If you cannot stomach that, it might not be right for you. Still, opportunities to play growth in Africa directly are rare, even when they are a little volatile.
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