China Mobile Is Winning the Race

Formula One champion Kimi Raikkonnen wasn't the only one whizzing past his competitors in Shanghai recently. In its third-quarter earnings release, China Mobile (NYSE: CHL  ) continued to race far ahead of sole competitor China Unicom (NYSE: CHU  ) .

China Mobile's high-octane 21% revenue growth for the quarter left China Unicom's 6% (for the quarter and the year to date) in the dust. A look under the hood tells us why -- China Mobile captured 80% of all new mobile users during the period, adding to its 68% share at the beginning of 2007. And the company has cornered 80% of the market's mobile revenue to boot.

Supercharged, profitable growth
This near-monopolistic combination of share and revenue performance was powered by a souped-up marketing engine. It drove the addition of more than 17 million new users, as well as boosting those customers' usage volume.

Naturally, such efficient marketing produced even faster growth in after-tax profits -- 30% for the quarter and 38% over the first nine months of 2007. Even after rebounding from a barely profitable second quarter, China Unicom remains far behind with its 22% profit growth so far this year.

As a result, China Mobile's after-tax profit margin of 24% is now double that of China Unicom. That should reassure anyone who thinks China Mobile's strategy of courting cost-conscious prepaid users means giving priority to market share over profitability.

Ready for the next race?
China Mobile's short-term success is almost a given now, considering how it's blown China Unicom off the track. But there may be new challenges around the corner. China's 3G licensing plans could shake up the market -- or lead to a fiasco similar to what happened in Europe.

Eventually, when market penetration growth starts slowing, China Mobile will have to change gears to protect its predominantly prepaid user base from much more intense competition. But judging by how it has used value-added services such as "Color Rings" to drive growth, it looks like China Mobile should have the pole position in the race for China's mobile market.

Related Foolishness:


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 539555, ~/Articles/ArticleHandler.aspx, 8/30/2014 12:45:30 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 hours ago Sponsored by:
DOW 17,098.45 18.88 0.11%
S&P 500 2,003.37 6.63 0.33%
NASD 4,580.27 22.58 0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/29/2014 4:05 PM
CHL $62.28 Up +0.34 +0.55%
China Mobile CAPS Rating: ****
CHU $17.73 Up +0.55 +3.20%
China Unicom Limit… CAPS Rating: **

Advertisement