The only reason I can think of to set foot near a mall today is to research retailers, but rather than deal with the herd of people stampeding from deal to deal, I'm going to spend the day catching up with some companies that I own. First out of the gate is NTT DoCoMo (NYSE:DCM).
NTT DoCoMo, which is majority owned by Nippon Telegraph and Telephone (NYSE:NTT), released earnings for the first half of its fiscal year at the end of October. It wasn't a terribly impressive performance, but it was not far off from the company's full year plan. Revenues were essentially flat with last year, while operating income fell 7.4% and net income fell 19.6%. The declines in operating income and net income are a bit disappointing, but both represent about 63% of what the company expects to achieve for the full year. When the company reports its full year results in March it expects that operating income will be flat with last year.
DoCoMo and KDDI continue to alternate as the leaders in adding new customers to their networks with each claiming between 40% and 50% of new subscribers each month. The remaining 10% of new subscribers are claimed by Softbank, which purchased Vodafone's (NYSE:VOD) operations earlier in the year. On the churn front, DoCoMo continues to be successful holding onto the customers that it has and reducing its churn rate. In fiscal year 2004 the company's churn rate was just over 1%, but it has been trending steadily lower and came in at 0.81% at this point last year and 0.62% in the most recent quarter. The company also continues to migrate subscribers from its mova network to its FOMA network, which offers faster data services and boosts the company's average revenue per user.
Growing the business at DoCoMo is no longer as simple as adding new subscribers to the network and watching the cash roll in. A mature market coupled with competition from au (owned by KDDI) and Softbank has created a challenging environment for growth. To spur growth the company is rolling out a number of new features including more international plans and services, downloadable music service partnered with Napster and Tower Records (brands that have more strength in Japan than here) that runs about $17.20 a month for unlimited usage, and the ability to use a mobile phone as a credit card or e-wallet (Osaifu keitai). Making the credit card portion of the business viable requires building out a large network. In some ways it is a "build it and hope they come" proposition. The company continues to add vendors and various service provides to its network and now offers compatibility with Visa as well.
Ultimately, I find DoCoMo attractive, because of the lack of appreciation the market has for the cash flow the business generates. Number portability is causing already heated competition with KDDI and Softbank to get hotter, but I believe the expanded services DoCoMo offers will ultimately allow it to hold onto its current level of cash flows, making the stock a bargain. And if one of the company's ancillary services, such as music downloads or e-wallet transactions, begins to take off, then the shares will likely take off as well.
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At the time of publication Nathan Parmelee owned shares in NTT DoCoMo, but had no financial interest in any of the other companies mentioned. Vodafone is a Motley Fool Inside Value selection. The Motley Fool has an ironcladdisclosure policy.
