China Mobile – More Profitable Than Netflix

China Mobile – More Profitable Than Netflix
  • Investing is all about comparing disparate assets with different risk/return profiles.
  • Again, I will compare two such disparate assets, Netflix and China Mobile.
  • As it turns out they share a similar ARPU, but everything else is worlds apart and not always favoring the obvious.

At all times investing is about comparing disparate assets with separate risk/return profiles, and deciding what assets to choose between them. This can lead to funny comparisons, like between Apple (NASDAQ:AAPL) and Kohl’s (NYSE:KSS) (which ultimately worked very well).

Today, I’m going to do yet another such comparison. This one will be between China Mobile (CHL) and Netflix (NFLX). Of course, these two companies are worlds apart. China Mobile is the leading mobile telecom operator in China, and also the largest mobile telecom operator in the world. Netflix is the leading paid streaming provider in the world.

There is a point of contact between these two, though. They actually share a similar ARPU (Average Revenue Per User). As of Q1 2018, Netflix ARPU was $9.14. China Mobile had an ARPU in its mobile business of ~$8.62, so only a bit lower.

That’s where the similarities end, though. Consider the following:

  • Netflix is valued as a massive growth business, whereas China Mobile is valued as a stagnated old economy dinosaur. As a result, Netflix trades for ~150x 2018 earnings and ~161x TTM EV/EBITDA. China Mobile trades for ~13.6x TTM earnings or ~4x EV/EBITDA.
  • Of course, the story is that Netflix is growth whereas China Mobile is a stranded dinosaur. How does this translate to numbers? Netflix added ~5.3 million customers during Q1 2017, and is expected to add another 3.2 million in Q2 2017. As for China Mobile? Well, it added ~7.6 million mobile customers in Q1, and has already added another ~6.9 million in Q2 2017, with 1 month to go. And that’s just for mobile telephony, because China Mobile also has a fixed broadband business, where it added another 8 million customers in Q1 2017. As a result, while Netflix grows faster in relative terms (due to a smaller base), China Mobile grows its customer base significantly faster in absolute terms.
  • What about the size of that customer base producing very similar ARPUs? Netflix had 94.3 million subscribers at the end of Q1 2017. China Mobile had 856.5 million mobile telco customers – and they were growing faster. It also had another 85.6 million wireline broadband customers. Put another way, China Mobile’s mobile telecom customer base was 9 times larger, and growing faster in absolute terms.
  • While the Netflix valuation multiples are much higher, its market capitalization is lower because it is a much smaller company. Still, Netflix has a market cap of ~$69 billion. China Mobile has a market capitalization of ~$213 billion (3.1x larger), but since it holds nearly $75 billion in net cash, the market cap ex-cash is just 2x higher. Of course, for that you buy a business that’s 9x larger in customers and running at a similar ARPU while growing faster in absolute terms.
  • Finally, profitability. Netflix has an EBITDA margin ~5%, whereas China Mobile has an EBITDA margin ~36% (so, 7x larger margin on a larger business). China Mobile is more profitable.

Technical Analysis

Overall, the bias in prices is: Downwards.

Short term: Prices are stalling.

Intermediate term: Prices are trending.

By the way, prices are vulnerable to a correction towards 83.45.

The projected upper bound is: 83.78.

The projected lower bound is: 80.66.

The projected closing price is: 82.22.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 19 white candles and 27 black candles for a net of 8 black candles.

A long lower shadow occurred. This is typically a bullish signal (particularly when it occurs near a low price level, at a support level, or when the security is oversold).

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 77.9816. This is not an overbought or oversold reading. The last signal was a buy 5 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 46.36. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 1 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 18. This is not a topping or bottoming area. The last signal was a buy 4 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 0 period(s) ago.

Rex Takasugi – TD Profile

CHINA MOBILE closed up 0.250 at 82.250. Volume was 10% below average (neutral) and Bollinger Bands were 6% narrower than normal.

Open     High      Low       Close     Volume
82.200  82.450  81.600  82.250  13,498,743

Technical Outlook
Short Term:               Neutral
Intermediate Term: Bearish
Long Term:                Bearish

Moving Averages: 10-period    50-period    200-period
Close:                       81.40            84.12            86.12
Volatility:                16                   12                 18
Volume:                   16,777,880  13,542,249  14,429,882

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

CHINA MOBILE is currently 4.5% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of 0941.HK at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on 0941.HK and have had this outlook for the last 23 periods. Our momentum oscillator has set a new 14-period high while the security price has not. This is a bullish divergence.

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Ivy Heffernan

Ivy Heffernan, student of Economics at Buckingham University. Junior Analyst at HeffX and experienced marketing director.

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