China Mobile Ltd. CHL, the largest wireless operator of China, reported disappointing financial results for the fourth quarter of 2014. Both total revenue and net earnings declined year over year. This marked the sixth successive quarter of net profit decline.
The dismal performance can be largely attributed to reasons like (1) slowing down of growth in the Chinese mobile market (2) higher expenses related to 4G TDD-LTE network rollout (3) increased customer retention costs (4) newly imposed value-added taxes and (5) intensifying competition from online streaming service providers.
Quarterly total revenue was approximately $25.8 billion, down 4.2% year over year. Net earnings were around $4.3 billion, down 12% year over year. Quarterly earnings before depreciation, amortization, interest and tax (EBITDA) were $9.6 billion, reflecting a decline of 6.1% year over year.
For fiscal 2014, total revenue was approximately $103.3 billion, up 1.8% year over year. Net earnings were around $17.6 billion, down 10.2% year over year. EBITDA in fiscal 2014 was about $37.88 billion, reflecting a decline of 2.1% year over year. EBITDA margin came in at 36.7% compared with 38.2% in fiscal 2013. Since Jan 2014, China Mobile has been offering Apple Inc. AAPL developed iPhones.
Segment wise, Telecommunications Services revenues were approximately $93.7 billion, down 1.5% year over year. Within this segment, Voice Services revenues stood at $49.7 billion, down 13.1%. Data Services revenues came in at $40.7 billion, up 22.3%. Meanwhile, Others revenues totaled $3.2 billion, down by a whopping 30% year over year. Revenues from Products and other sales were approximately $9.6 billion, up 51.5% year over year.
As of Dec 31, 2014, China Mobile had a total of 806.63 million subscribers. Out of this, 470.82 million (58.4%) were 2G subscribers, 245.75 million (30.5%) were 3G subscribers and the remaining 90.06 million (11.1%) were 4G subscriber’s. The company added a net 49.11 million 4G subscribers in the reported quarter. In fiscal 2014, average revenue per user per month was $9.84 compared with $10.81 in fiscal 2013. Average monthly customer churn rate was 3.13% in 2014 against 3.15% in 2013.
China Mobile is the largest wireless operator in the world with respect to subscriber count. However, the wireless communications market in China has become intensely competitive. China Unicom Ltd. CHU and China Telecom Corp. Ltd. CHA are also expanding their FDD-LTE networks. Therefore, room for further growth is limited.
Nevertheless, China Mobile is still serving a significant number of 2G and 3G subscribers. The company can markedly improve its top as well as bottom line by upgrading 3G customers to 4G and 2G customers to 3G. China Mobile currently holds a Zacks Rank #1 (Strong Buy).
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