As earnings season draws to a close, and the workweek with it, Very Important Phone company VimpelCom (NYSE:VIP) is set to report its second-quarter 2006 earnings results on Friday. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Only one out of 17 analysts who follow the stock puts VimpelCom on hold; the other 16 all dial buy.
  • Revenues. And no wonder -- on average, the analysts believe the company grew its sales by another 37% last quarter, to $1.06 billion.
  • Earnings. Profits, however, are perceived to have grown "only" 19% to $0.93 per share.

What management says:
The above estimates tell you two things about analysts' view of VimpelCom's business. First, they see a continuing deceleration in the rate of sales growth (last quarter, if you recall, the estimate was for 46% growth). Second, they continue to see profits growth lag that of sales.

Which suggests that VimpelCom's July announcement of an entry into the Georgian market (no, not the one with Atlanta -- the other Georgia) may have been both a validation of and a response to those concerns. By heading "south of the border" and acquiring a 51% interest in Georgian cellphone operator Mobitel (and a call option on the remaining 49%), VimpelCom gets to buy itself a bit of growth, while gaining entry into a market where the competition is a bit less stiff than back home in Moscow, perhaps boosting the profitability of those extra revenues.

What management does:
VimpelCom's gross margins have held pretty steady for the last 18 months, but the firm's investments in developing and convincing clients to use higher-margin services have steadily eroded rolling operating margins for six quarters running. Disappointing? Sure, but VimpelCom has to get customers to pay up for more than just the basic cellphone functions if it's going to get its profits growing in tandem with sales again.

Margins %




























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
VimpelCom's move into Georgia is a bit of a surprise. It's not that the firm wouldn't find the nation's 4.7 million potential cellphone users attractive, nor that Georgia's mere 30% market penetration rate wouldn't get VimpelCom's managers drooling. Instead, it's in the way that VimpelCom is entering the market: from the ground up. At present, the Georgian market has two active providers, Geocell and Magticom, which split market share 55/45 between them. VimpelCom's new prize, Mobitel, possesses a shiny new GSM-1800 license, issued in 2003 and valid through 2013. But the "company" hasn't even begun commercial operations yet.

But that doesn't mean VimpelCom can't make a go of things in Georgia. The low market penetration rate means that VimpelCom doesn't even need to steal market share to build up a customer base. It can do that just by pulling in new non-cellphone users. But because it's starting from square one, don't be surprised if VimpelCom takes a little time to get things rolling down there.


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VimpelCom throws out market penetration figures as if they're indisputable fact. But you might want to take them with a grain of salt. Learn the real facts surrounding Russia's New Telecom Math.

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a full disclosure policy.