Carlos Slim, the world’s richest billionaire, has lost around $5.8 billion off his net worth since the middle of February, due to a significant drop in the market price of his company, America Movil SAB de CV (ADR) (NYSE:AMX). Since Feb. 1, America Movil has decreased by nearly 34.5%, from $25.55 per share to only $19 per share. The significant decline in America Movil’s shares is due to a bill proposed by Mexican president Enrique Pena Nieto to break up the company’s monopoly in Mexico. Should investors consider a significant drop in America Movil an investment opportunity? Let’s find out.
Mexico and Brazil are big markets
America Movil SAB de CV (ADR) (NYSE:AMX) is considered the biggest wireless communications services provider and a major fixed-line operator in 18 countries in Latin America. The company reported that it had the largest market share in Mexico, Colombia, and Ecuador and the third largest market share in Brazil. The majority of its revenue, $705.5 billion pesos (USD $57.32 billion), or 91% of its total 2012 revenue, were generated from service revenue. Equipment revenue was $69.5 billion pesos (USD $5.63 billion). The biggest market for America Movil is Mexico, with 70.4 million wireless subscribers and 22.67 million revenue generating units (RGUs) in 2012. Brazil is its second largest market with 65.2 million wireless subscribers and 28.6 million RGUs.
In the Mexican market, the majority of its revenue, $177.2 billion pesos (USD $14.36 billion) are generated from wireless subscribers. Interestingly, out of 70.4 billion wireless subscribers, nearly 61.8 million subscribers were prepaid customers. In the fourth quarter of 2012, its average revenue per user (ARPU) increased to $172 pesos (USD $13.94) with an overturn rate of 3.6%. In Brazil, America Movil also generated significant revenue, R$12.76 billion (USD $6.42 billion) from wireless services. Out of 65.2 million wireless subscribers, 52.2 million of them were prepaid customers. The ARPU in Brazilian market was R$16 (USD $8.05) with an overturn rate of 3.7%.
The cheapest telecom player
Like other telecommunication companies including Telefonica S.A. (ADR) (NYSE:TEF) and Verizon Communications Inc. (NYSE:VZ), America Movil SAB de CV (ADR) (NYSE:AMX) employs high leverage in its operations. As of December 2012, it had $312.2 billion pesos (USD $25.3 billion) in total stockholders’ equity, $45.5 billion pesos (USD $3.7 billion) in cash and nearly $418 billion pesos (USD $33.87 billion) in both long- and short-term debt. Thus, its debt-to-equity ratio is 1.3. Verizon Communications Inc. (NYSE:VZ) had a bit higher debt-to-equity ratio of 1.4, while Telefonica seems to have the most leverage with a debt-to-equity ratio of 2.8.