Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):
NTT DoCoMo's Net Falls 21% On Costs Related to 3G Services
Summary: NTT DoCoMo (NYSE:DCM), the leading cellular phone service provider in Japan with 55% market share and slightly over half of its 51-million plus subscribers on 3G, reported a 21% drop in net income y-o-y for the first quarter ended June 30th. The decrease is attributed to higher costs associated with enhancing its 3G network and promoting 3G service. Net income came in at 163.51 billion yen ($1.4b) but note that in Q1 last year DoCoMo benefited from a one-off gain of 62 billion yen ($530m) from selling Hutchison 3G UK Holdings Ltd. shares. DoCoMo's revenue increased by 2.7% y-o-y to 1.219 trillion yen ($10.4b). DoCoMo said it is maintaining its full-year earnings projections with net income estimated at 488 billion yen ($4.2b) and revenue at 4.838 trillion yen ($41.4b). In an effort ward off tougher competition DoCoMo is focusing more on improving its handsets and offering innovative functions such as its "osaifu-keitai" or wallet phone service.
Comment on related stocks/ETFs: After delving further into NTT DoCoMo's (DCM) earnings the 21% fall in net income is not as bad as it seems. First, there is the one-off gain in Q1 last year. Second, if DoCoMo weren't spending money to market and expand upon its 3G services there would be a lot more reason for concern. Nevertheless, Japanese analysts are worried that DoCoMo will continue to lose incremental market share to aggressive number two rival KDDI Corp (Tokyo: 9433). This is a legit concern but not significant enough to completely shun DoCoMo shares, which as of late have been trading at or near all-time lows. It is harder for DoCoMo to put up as flashy numbers because of its huge size. Also, DoCoMo's industry metrics are still very competitive, if not the best in the industry. Lastly, the threat from Softbank Corp (OTCPK:SFTBF), which bought Vodafone Japan earlier this year -- the number three player with approx. 17% market share -- is not as serious as initially thought. DoCoMo could still trade even lower as investors are very standoffish with number portability becoming available this fall. See Steven Towns' recent post: "Number Portability Spooks Investors in Japanese Cellular Co's." And look for value investors to move in as DoCoMo has been buying back shares and its yield is looking increasingly attractive.