It's tough to look at a company that's simply firing on all cylinders and say, "It's just not enough." But that's what the market is saying today in response to Russian wireless services provider Vimpel Communications' (NYSE: VIP ) fourth-quarter and year-end report.
From an operational standpoint, it's hard to see how things could have been better, but the market still bid the stock down by as much as 7% following the release.
VimpelCom reported a 38.5% increase in consolidated revenue in the fourth quarter to $2 billion. Profits rose even faster, rising 86% to $368 million. Looking at the full year 2007 compared to 2006, revenue jumped 47% while net income zoomed ahead 80%. The company didn't "acquire" this growth either -- most of it came from expansion in Russia and developing markets in the Commonwealth of Independent States (CIS).
Operationally, the numbers show that management is running a tight ship at VimpelCom. A stock price that doubled caused stock-based compensation to drop operating margins (operating income evaluated before depreciation and amortization charges, or OIBDA) to 45.7% in the quarter. Average revenue per user also climbed significantly in its core Russian market to $13.50 per month. Efforts to grow revenue in developed markets appears to be paying off.
U.S. operators such as AT&T (NYSE: T ) , Sprint Nextel (NYSE: S ) , and Verizon Wireless -- a joint venture between Verizon Communications (NYSE: VZ ) and Vodafone (NYSE: VOD ) -- garner three to four times this from each of their subscribers but produce nowhere near the margins VimpelCom sports. As such, VimpelCom throws out gobs of free cash flow, totaling $1.26 billion for 2007.
But competition from main rival Mobile TeleSystems (NYSE: MBT ) remains stiff. VimpelCom's subscriber acquisition costs grew substantially in most markets, even ahead of revenue growth. For instance, in Russia, SAC grew by 42.5% for the full year, while revenue grew by 38.4%.
While there's much uncertainty ahead for VimpelCom with its new acquisition of Golden Telecom -- not to mention the risk of just being a Russian company -- the wireless operator remains one of my favorite international telecoms. It doesn't have the massive base that China Mobile (NYSE: CHL ) has, but the operational efficiency at the company is impressive no matter what size they are. I see it as still reasonably priced considering growth prospects.
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