China Mobile Q3 Earnings, Revenues Decline on Rising Costs
China Mobile Ltd. (CHL), the largest wireless operator of China, reported disappointing financial results for the third quarter of 2014. Both total revenue and net earnings declined year over year. Net profit dropped for the fifth successive quarter.
The dismal performance can be largely attributed to five reasons including (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.
Quarterly total revenue was approximately $25.8 billion, down 2.1% year over year. Net earnings were around $4.1 billion, down 12.4% year over year. Quarterly earnings before depreciation, amortization, interest and tax (:EBITDA) were $9.6 billion, reflecting a decline of 6.3% year over year.
For the first nine months of 2014, total revenue was approximately $79.3 billion, up 3.9% year over year. Net earnings were around $13.6 billion, down 9.7% year over year. EBITDA during the same period was about $29 billion, reflecting a decline of 5% year over year. Profit margin came in at 17.2% compared with 19.8% in the year-ago period. Since Jan 2014, China Mobile has been offering Apple Inc. (AAPL) developed iPhones.
At the end of third-quarter 2014, China Mobile had a total of 799.13 million subscribers. Out of this, 513.72 million (64.3%) were 2G subscribers, 244.46 million (30.6%) were 3G subscribers and the remaining 40.95 million (5.1%) were 4G subscriber’s. The company added a net 11.4 million 4G subscribers in the reported quarter.
China Mobile is the largest wireless operator in the world with respect to subscriber count. However, the wireless communications market in China is almost saturated. 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 and bottom lines by upgrading the 3G customers to 4G and 2G customers to 3G. China Mobile currently holds a Zacks Rank #1 (Strong Buy).
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