Brazilian telecom carrier Telefonica Brasil SA (VIV) reported third-quarter 2014 earnings per share of 35 cents, a penny lower than the Zacks Consensus Estimate. However, the company’s earnings per share increased 20.7% year over year primarily driven by a surge in data average revenue per user (ARPU). The company’s shares increased 1.5% yesterday.
Net operating revenue rose 1.2% year over year to R$8,723.9 million ($3,834.2 million). However, the figure missed the Zacks Consensus Estimate of $3,839 million.
Recurrent EBITDA improved 7% year over year to R$2,547.5 million ($1,119.6 million) in the third quarter, while EBITDA margin of 29.2% was up 160 basis points.
Recurrent operating expenses increased 1.0% year over year to R$6,176.4 million ($2,714.5 million).
Segment-wise Results
Mobile Business’ total revenue climbed 3.5% year over year to R$5,938 million ($2,609.8 million) in the reported quarter, primarily driven by Data, Internet, VAS and other services.
As of Sep 30, 2014, the total subscriber base touched 79.8 million (up 4.2% year over year). Post-paid subscribers increased 22.8% year over year to 27.2 million, while the prepaid customer count fell 3.4% year over year to 52.6 million.
Fixed Line Business’ total revenue fell 3.2% year over year to R$2,785.9 million ($1,224.4 million). Pay-TV revenues jumped 23% while fixed voice and access revenues dropped 9.9% year over year.
At the end of the third quarter, total fixed access lines reached 15.6 million, reflecting a 3.5% year-over-year increase. Fixed Broadband customers were 3.9 million compared with 3.9 million a year ago. The Pay-TV subscriber base grew 26.1% year over year to 728,000 customers, while fixed voice subscribers totaled 10.9 million, up 2.9% year over year.
ARPU
ARPU fell 0.2% to R$23.6 ($10.37), primarily due to an 8.1% decline in Voice ARPU. On the positive side, Data ARPU jumped 16.2%.
Liquidity
Telefonica Brasil – a subsidiary of Telefonica SA (TEF) – exited the quarter with cash and cash equivalents of R$6,377.3 million ($2,802.8 million) as compared to R$8,630.2 ($3,793.0 million) at the end of third-quarter 2013. Total debt was R$8,345.8 million ($3,667.9 million) versus R$9,213.3 million ($4,049 million) at the end of third-quarter 2013.
Our Take
We believe Telefonica Brasil’s bundled offering coupled with quality service is consistently strengthening its competitive position, in turn, allowing it to expand its market share. However, the poor performance of the company’s fixed voice and access business remains a concern. Further, weak economic growth, competitive pressure, increased wireless penetration, a weak Brazilian currency and regulatory pressures are the major hurdles facing the company.
Zacks Rank
Telefonica Brasil currently retains a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in this sector include China Unicom (Hong Kong) Limited (CHU) and Chunghwa Telecom Co., Ltd. (CHT). Both the stocks hold a Zacks Rank #2 (Buy).
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