America Movil (AMX) provides wireless communications services across Latin America and is the fourth largest mobile network operator in terms of equity subscribers. The company is headquartered in Mexico City, Mexico. It operates in 18 countries including Jamaica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Peru, Argentina, Uruguay, Chile, Paraguay, Puerto Rico, and Ecuador. Its subsidiaries include Telcel in Mexico, as well as Claro and Embratel in Brazil. Founder Carlos Slim incorporated the company in 2000 under the holding company America Telecom. It has taken stakes in various other cellular telephone providers in and outside of Mexico and Brazil. Other recent acquisitions include Oceanic Digital and Telekom Austria.
As of 2013, America Movil has over 265 million mobile customers, and more than 31 million fixed lines. It also holds over 290,000 kilometers of fiber optic cable within its infrastructure. Services include wireless mobile and fixed voice, including airtime, local, domestic, and international long-distance. The company additionally offers network interconnection and public telephony services, data messaging, web browsing, mobile, entertainment, enterprise, and corporate network offerings. While its main source of revenue is its wireless division, the other segments have grown tremendously over the years, as the company has expanded its offerings to compete in a challenging environment. Its main regional competitors include Telefonica SA (TEF), Grupo lusacell, S.A., and NII Holdings. However, the telecommunication industry is ever expanding, and American carriers are constantly looking to enter the fray. In September of 2013, America Movil partnered with AT&T Inc. (T – Free AT&T Stock Report) to offer services in Latin America. The company agreed to share local network connections with AT&T, connecting it to about 15 countries. AT&T currently owns about 7.5% in America Movil.
Recent results have illustrated continued growth in the company’s wireless base, which was up 4.4% by the end of 2013. This included about 9.0% growth in its postpaid subscriber base, and a 3.8% increase in prepaid subscribers. Too, the company has experienced success with its PayTV segment. PayTV is a subscription-based television service which provides digital cable and internet television to customers. The company experienced approximately 20% annual growth in subscribers for this segment. However, America Movil uses a rather unconventional method to count its TV customers, making it hard to to compare it with competitors. The company counts subscribers as revenue generating units (RGUs), a non-standardized measurement that includes other types of digital-based services according to management. That said, the PayTV business in Mexico is expanding, as the emerging middle class continues to sign up for various services.
The Eastern European market has provided the company with an intriguing opportunity to expand outside Latin America. Telekom Austria is the company’s vehicle to expansion in this particular region. Management is currently in discussions with Austria’s state-owned investment arm to pool their respective stakes in Telekom Austria to allow America Movil an increase in its control over the incumbent. This news augurs well for long-term prospects and is a good sign for investors who doubt the company’s willingness to expand outside its established base.
Consolidation efforts have brought in additional revenue streams. Strong balance sheet fundamentals and cash position allow America Movil the flexibility to acquire and expand its business in various areas, giving it a solid competitive edge in the market. That said, profits in Mexico have been shrinking as of late, despite growth in other areas. Margins have been constricted due to the sluggish economy and unprecedented government oversight due, in part, to new laws enacted to spur competition. Regulators have cut fees and forced the company to share its network infrastructure with other providers.
While the stock price has fallen since its heyday in 2007, the equity has its investment merits. Indeed, solid financial fundamentals, and a growing subscriber base make American Movil an attractive option for conservative investors in a more volatile industry. Investors interested in this equity should carefully review our full-page report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.