Telefonica: Not Just a Reign in Spain

Before you go, we thought you'd like these...
Before you go close icon

The iPhone 5 launch on Wednesday, Sept. 12 is sure to be the most important event for tech investors this year. The Motley Fool will be hosting a live chat where our top tech analysts will answer your questions and break down what the announcement means for Apple and tech investors everywhere. Be sure to swing by Fool.com at 12:45 p.m. EDT next Wednesday for all your coverage of Apple's next big announcement.

Telefonica (NYS: TEF) has certainly felt the effects of Spain's struggling economy, and the country's unemployment rate of almost 25%. With such a weak consumer base, the company decided to suspend its dividend payments, a move the former monopoly has not had to make since the Spanish civil war in the 1930s. Telefonica's share price has dropped 38% in less than a year.

Seeing the handwriting on the digital wall
Despite having telecom investments in parts of the world that haven't been hit as hard by economic misfortune, Telefonica has decided to gaze a bit further into the future, looking at how it could compete in the mobile advertising and online payments markets against the likes of Facebook (NAS: FB) and Google (NAS: GOOG) .


To that end, the company is putting together a network of venture capital firms, called Amerigo, which will invest in digital start-up companies. The first investments will be made in Spain, Chile, Brazil, and Columbia, where those start-ups would receive some governmental funding.

Tasked with managing the Amerigo investment funding network, and given near-autonomy, is Telefonica's year-old Digital division. Telefonica Digital has already generated $3 billion in revenue in 2011 and plans on more than doubling that by 2015.

The Digital division has already made "direct to bill" agreements with Facebook, Google, Microsoft (NAS: MSFT) , and Research In Motion (NAS: RIMM) , enabling Telefonica customers to pay for services from those customers through their phone bills. This is significant in areas where credit card use is not widespread, such as in Latin America.

Pensardiferente
Telefonica Digital chairman and CEO, Matthew Key, said in a statement, "We have long understood that to succeed we need to understand ... the digital innovation ecosystem, recognizing that great ideas can come from anywhere." Even "outside of the main centres of venture capital activity, such as Silicon Valley and London."

Does Telefonica rate a thumbs-up in CAPS? I think it does. The company is profitable, and its P/E is under 4. And regarding that suspended dividend, Telefonica said it would reinstate it for 2013, though it will be paid in shares, not cash. Furthermore, the company has global investments and does not have to rely on a quick turnaround in Spain for its survival.

If Telefonica can make inroads into Facebook's advertising revenue stream, what would that mean for Facebook? For a thorough discussion of the pros and cons of investing in Facebook, this premium Fool report is a must-read. Get it here .

The article Telefonica: Not Just a Reign in Spain originally appeared on Fool.com.

Fool contributorDan Radovskyhas no financial interest in the above-mentioned companies. The Motley Fool owns shares of Facebook and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Google, Microsoft, Apple, and Facebook.Motley Fool newsletter serviceshave also recommended creating a synthetic covered call position in Microsoft and a bull call spread position in Apple. The Motley Fool has adisclosure policy.
We Fools may not all hold the same opinions, but we all believe that
considering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners