Spanish telecom giant Telefonica S. A. (TEF) plans to double its revenue from the Telefonica Digital division by 2015 through various strategic developments. The unit includes Spain’s popular social networking site Tuenti, Internet telephony provider Jajah, Internet portal Terra and other businesses such as giffgaff. The strategies include:
Direct-to-Bill Payments: The company will offer direct-to-bill payments for goods and services, particularly in Latin America, in collaboration with Facebook Inc. (FB), Google Inc. (GOOG), Microsoft Corporation (MSFT) and Research In Motion Ltd. (RIMM). This alliance would be fruitful for Telefonica, as credit card penetration in Latin America is low and 60% of the population does not have a bank account.
Additionally, Telefonica’s direct-to-bill payments are already gaining huge traction in Europe and Germany. The company expects to reach 14 markets globally with the service by the year-end.
Strategic Partnership: Telefonica Digital entered into a partnership with UAE-based operator Emirates Telecommunications Corp., or Etisalat. The agreement will enable companies to jointly expand their business opportunities in M2M, financial services, cloud computing, eHealth, mobile advertising and over-the-top communications.
Mobile Advertising in Brazil: Telefonica will make an investment of multi-million euros to develop the mobile advertising market in Brazil.
Deployment of Firefox OS: Telefonica Digital will continue to deploy Mozilla’s HTML5 platform (known as Firefox OS) on its mobile handsets, leading to low cost devices. This platform would boost smartphone penetration in the developing markets.
All these initiatives would help Telefonica Digital to outperform in the global digital market with greater opportunity and more efficiency. The expansions would aid Telefonica Digital to grow its revenues by 20% to €5 billion by 2015 from the current €2.4 billion.
We are maintaining our long-term Neutral rating on Telefonica. But for the short term (1–3 months), the stock retains a Zacks #5 (Strong Sell) Rank.
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