NTT DOCOMO, Inc. (DCM, $24.71):
“Did
DCM peak, or is it only the beginning to something bigger?”
by: Anthony DiSanto, AIM Student
at Marquette University
Disclosure: The AIM Equity Fund
currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
·
NTT Docomo, Inc. (NYSE: DCM) mainly provides
telecommunication services in Japan, but also operates in the Smart Life
Business, and in a variety of other businesses.
- In June of 2016, Kazuhiro Yoshizawa took the position of President & CEO of NTT Docomo (“DCM”). His focus is on creating and evolving services, expanding partnerships, and reinforcing its telecommunications business.
- DCM continues to increase its number of subscribers year over year. Currently its customer base is 70,964 thousand, which is 43.6% of the domestic market. In addition, ARPU has begun to increase, from ¥4,100 in 2014 to ¥4,170 in 2015 (per month per user).
- DCM began to rollout “+d”, which is its partnership with other entities to grow value for its D account members. Members who do not use the telecommunication portion of DCM can accumulate points through its other services and use those in dmarket.
- DCM is working to increase its smart-life and other businesses to account for ¥100.0 billion or more of its operating income by FY2017. DCM is already on track to do ¥120 billion in operating income for FY2016.
Key Points
Since
repositioning itself in FY2014 after witnessing a year-on-year decline in
income, future growth has become DCM’s focus. This is explained through its
attention to cost efficiencies. In 2015 DCM cut selling expenses and
network-related expenses leading to an overall operating expense reduction of
¥0.3 billion.
DCM
has also been focusing heavily on expanding its Smart-life and Other business
segments, understanding that it will become increasingly difficult to expand
through telecommunications. Thus, it is looking to create a membership-focused
business for those who do not have NTT Docomo subscriptions. This is
accomplished through “+d” in which DCM teams up with other entities, which will
drive its Smart-life and Other business profits.
DCM
is currently working on software through which it hopes to connect the world.
In 2012, DCM released “Hanashite Hon’yaku” which translates words through voice
recognition and that lead to “Jspeak” overseas in 2014. DCM established Mirai
Translate, Inc. in 2014 to capitalize on areas previously untapped to it, such
as tourism and other translation services. It hopes to establish technology
that will perform real-time translation services to connect the world.
With
the current devaluation of the firm after the announcement of stock
repurchases, the price plummeted. However, after posting positive earnings and with
the way DCM is performing quarter to quarter, it should be trending higher.
What has the stock done lately?
Since
July 6, 2016, after NTT Docomo announced its share repurchase program of ¥500
billion, the stock has fallen 12.75%. The stock plummeted again at the
beginning of August when it announced more share repurchases. Surprisingly
after posting positive results in its annual report on September 9, 2016, the
stock experienced a slight increase, before settling at $24.71 which is where it
currently stands.
Past Year
Performance: Over
the past year, DCM has increased 37.66%, although mention was made it has gone
through a price correction since July 6, 2016. In their earnings call they
spoke about their new “share packs” targeting the families that used less than
one gigabyte of data. This has led to an increase in ARPU, as mentioned above.
Thus, the 37.66% increase is well deserved.
Source: FactSet
My Takeaway
Although
the stock has been going through a volatile period, I believe that the
refocusing of the company puts it at a state for future growth. CEO Kazuhiro
Yoshizawa focus on turning the company into a membership focused firm is
intelligent, especially since telecommunications is
becoming harder to squeeze profit from. Also, his installment of new
share-packages and billing plans that target families are starting to bear
fruit. Thus, I believe that DCM will continue to increase profit going forward,
especially with their new “+d” business. NTT Docomo has already surpassed their
future goals in expanding their non-telecommunication operating revenue and is
on track to continue its growth. Thus, I believe DCM has opportunity to change
its current trend and begin to increase in share price again.
Source: FactSet
