Telefonica Brasil 2Q Earnings Plunge

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Brazilian telecom carrier, Telefonica Brasil SA (VIV) reported second-quarter 2013 net income of R$914.2 million ($443.1 million), down 15.8% year over year.

Revenues rose 3.0% year over year to R$8,491.5 million ($4,116.0 million).                      

Consolidated EBITDA dropped 16.7% year over year to R$2,575.5 million ($1,248.3 million) in the second quarter, with EBITDA margin of 30.3% was down 720 basis points (bps). Operating expenses increased 14.9% year over year to R$5,916.0 million ($2,867.5 million).

Revenue Segments

Mobile Business total revenue climbed 10.1% year over year to R$8,101.1 million ($3,926.6 million) in the reported quarter, primarily driven by data and value added services (:VAS), and access and usage revenues.

Average revenue per user (:ARPU) grew 3.4% to R$22.8 ($11.1), driven by a 23.4% rise in Data ARPU. Customer churn rose to 3.9% from 3.8% recorded in the second quarter of 2012.

As of Jun 30, 2013, the total subscriber base was 76.20 million (up 0.6% year over year). Post-paid subscribers grew 20.4% year over year to 20.685 million, while prepaid decreased 5.2% year over year to 55.515 million customers. 

Fixed Line Business total revenues fell 3.2% year over year to R$4,730.3 million ($2,292.8 million). Pay-TV was the worst performer with a 24.3% decline in net revenue followed by a 9.5% reduction in fixed voice and access.

At the end of the second quarter, the total fixed access lines reached 14.94 million, reflecting a 1.3% year-over-year decrease. Fixed Broadband customers were 3.837 million compared with 3.717 million a year ago. The Pay-TV subscriber base dropped 17.4% year over year to 537,000 customers, while fixed voice subscribers were 10.57 million, down 1.9% year over year. 

Liquidity

Telefonica Brasil – a subsidiary of Telefonica SA (TEF) – exited the quarter with cash and cash equivalents of R$7,779.2 million ($3,770.6 million) compared with R$2,049.5 million ($1,048.9 million) in the year-ago quarter. Net debt decreased to R$523.6 million ($253.8 million) from R$3,174.1 million ($1,625.5 million) in the corresponding year-ago period. The net debt-to-EBITDA ratio improved to 0.04 times from 0.26 times in the year-ago quarter.

Our Take

We believe that Telefonica Brasil displays long-term opportunities for both fixed-line and mobile businesses, leading to better revenues in the coming quarters. Broadening the subscriber base along with investments in improving network activity will also aid the company’s profitability.

Telefonica Brasil, which operates with other Latin American telecom service providers such as America Movil S.A.B. de C.V. (AMX) and Hawaiian Telcom Holdco Inc.(HCOM) currently holds a Zacks Rank #3 (Hold).

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