2023-03-10 05:23:56 ET
Summary
- Mobile Service continues to be a solid, positive catalyst for the company.
- Free cash flow has been increasing nicely, and with solid cash and cash equivalents, and healthy accounts receivable, the company has plenty of capital for operations.
- It looks like the company has the capacity to continue to grow at an incremental pace over time, although in the near term, it'll probably be a volatile ride.
Telefônica Brasil S.A. ( VIV ) is coming off a decent fourth quarter, led by its Mobile Service segment, which delivered a 13.4 percent year-over-year gain. While I don't think that will continue at that pace, I do think it has the potential to continue to climb over time.
Like any company, macro-economic conditions will play a role in the performance of the company, and in the near term it's likely to get worse before it gets better.
With that in mind, it's probable the company could have a slower first half of 2023 and ramp up in the second half. When I say slow first half, I mean when measured against its fourth quarter performance in 2022.
In this article, we'll look at some of the numbers from its latest earnings report, break it down by segments and categories, and look at what the next year looks like for the company.
Some of the numbers
Total revenue in the fourth quarter of 2022 was R$12.66 billion, compared to revenue of R$11.50 billion in the fourth quarter of 2021, a gain of 10.1 percent. Total revenue for full year 2022 was R$48.00 billion, compared to total revenue of R$44.00 billion for full year 2021, up 9.1 percent.
Revenue from Mobile accounted for R$8.9 billion in the reporting period, compared to Mobile revenue of R$7.8 billion in the fourth quarter of 2021, an increase of 13.4 percent. Revenue from Mobile for full year 2022 was R$33.00 billion, compared to Mobile revenue of R$29.4 billion for full year 2021, up 12.6 percent.
Fixed Core revenue was R$2.87 billion for the fourth quarter of 2022, compared to fixed Core revenue of R$2.57 billion for the fourth quarter of 2021, an increase of 11.9 percent. Fixed Core revenue for full year 2022 was R$11.1 billion, compared to fixed Core revenue of R$9.9 billion for full year 2021, a gain of 11.5 percent.
Non-core revenue, which includes Fixed Voice, xDSL, and DTH revenues, came in at R$888.00 million in the fourth quarter of 2022, compared to non-core revenue of R$1.09.00 billion for the fourth quarter of 2021, a decline of -(18.2) percent. Non-core revenue for full year 2022 was R$3.9.00 billion, compared to non-core revenue of R$4.7 billion for full year 2021, lower by -(17.5) percent.
EBITDA in the reporting period was R$5.23 billion, compared to EBITDA of R$4.93 billion in the fourth quarter of 2021, up 6.1 percent. EBITDA for full year 2022 was R$19.23 billion, compared to EBITDA of R$19.00 billion for full year 2021, an increase of 1.4 percent.
Net income in the fourth quarter of 2022 was R$1.13 billion, compared to net income of R$2.63 billion for the fourth quarter of 2021, plunging (57.2) percent. Net income for full year 2022 was R$4.06 billion, compared to net income of R$6.3 billion for full year 2021, down (34.9) percent.
The company explanation for the decline in net income was this:
It was "due to fiscal credit recognized as 4Q21 in the amount of R$1,408 million. Such credit referred to the decision of the Supreme Court of the unconstitutionality of the incidence of the IRP J and CSLL on the corrections to the Selic rate received due to the return of taxes unduly collected."
Free cash flow for the fourth quarter of 2022 was R$816.00 million, compared to free cash flow of R$737.00 million for the fourth quarter of 2021, a gain of 10.7 percent. Free cash flow for full year 2022 was R$7.29 billion, compared to free cash flow of R$7.44 billion for full year 2021, a decline of (2.0) percent.
At the end of calendar 2022 the company held cash and cash equivalents of R$2.27 billion, and accounts receivable of R$8.7 billion, compared to cash and cash equivalents of R$6.45 billion, and accounts receivable of R$8.1 billion at the end of calendar 2021.
Breaking down its performance
Mobile continues to lead the way for VIV, generating R$8.9 billion in revenue in the fourth quarter, up 11.9 percent from revenue of R$7.8 billion in the fourth quarter of 2021.
Of that, postpaid revenue accounted for R$6.38 billion, up 13.2 percent year-over-year. Prepaid accounted for R$1.53 billion, up 15 percent year-over-year, and Handsets accounted for R$985 million, up 11.9 percent year-over-year.
Its prepaid mobile customer base grew to 98 million, up 16.8 percent year-over-year. Postpaid represented 58.7 million of the total, up 18.2 percent over last year in the same reporting period, with prepaid accounting for 39.3 million, up 14.6 percent.
As for Fixed Core, that segment was led by FTTH, which generated R$1.4 billion in revenue in the fourth quarter, up 18.8 percent year-over-year. Next was Data, ICT & Digital Services, which generated revenue of R$1.0 billion in the reporting period, up 19.7 percent year-over-year. IPTV generated R$362.00 million in revenue, up 2.1 percent year-over-year. And FTTC generated R$101.00 million in revenue, down (42.6) percent year-over-year.
Concerning FTTH Homes Passed, that came in at 23.3 million, up 18.9 percent year-over-year. FTTH Homes Connected was 5.5 million in the fourth quarter of 2022, up 19.0 percent year-over-year.
Its share price movement
On April 5, 2022, the share price of VIV hit its 2-year high of $11.78, and from there entered a prolonged downward spiral, dropping to its 2-year low of $6.49 per share on January 3, 2023.
After rebounding from its low, the stock has traded in a range of approximately $7.25 to $8.30. Since September 2022, it has hit against a $8.30 ceiling, but has failed to sustainably break above it. With the stock starting to tighten up its trading range, a convincing break on either side of the play will likely be a significant one until further visibility on the performance of the company emerges.
I don't believe that type of break on either side of the play is likely, but if it does happen, the point is it's likely to be substantive because it would probably be driven by traders and not long-term investors.
That would mean if it does move to the upside in any significant manner, taking profits would be a wise decision; at least in taking some money off the table.
On the other hand, if a decline would be to the downside, it would be time to load up on some shares, as over time I think the stock will continue to move to the upside, albeit in a lumpy manner.
My point here is that the strongest probability is the company will continue to trade in the range it has been recently, but if it does break, it's likely to be temporary, and taking advantage of any such move should result in a positive outcome for investors.
Conclusion
VIV has been performing fairly well recently and has the potential to continue to grow at an incremental pace on a consistent basis. I think 2023 could be somewhat of an up-and-down year for the company, primarily based upon macro-economic conditions what will influence the actions of investors from quarter to quarter.
I think it's going to be somewhat of a two-steps-forward-one-step-back type of year for the company, and those interested in the company over the long term will probably do well if buying the dips.
Net income should improve going forward, and free cash flow has been increasing on a steady basis.
With a significant amount of cash and cash equivalents, along with a large number of accounts receivable, VIV has more than enough capital to fund its growth strategy.
Revenue in Mobile was up because of an increase in its customer base, pricing power, and churn that reached historically low levels. While that may moderate some in 2023, it's likely to increase over time.
Expectations for VIV shouldn't be too high, but during an expected tough 2023, it could be a good holding that should deliver moderate gains.
For further details see:
Telefonica Brasil Could Deliver Moderate Gains In 2023