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Increasing Global Data Usage Powers American Tower Corp.'s Results

American Tower (NYSE: AMT) grew at a torrid pace in the third quarter, driven by recent acquisitions and organic additions of new customers to its existing towers. The company expects that organic growth will continue to drive results given its view that mobile data usage in the U.S. and abroad will keep expanding at a rapid rate over the next several years.

American Tower results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$1.68 billion

$1.51 billion

11%

Adjusted funds from operations

$704.7 million

$612.0 million

15.1%

AFFO per share

$1.63

$1.42

14.8%

Data source: American Tower.

Image source: Getty Images.

What happened with American Tower this quarter? 

Healthy organic growth drove American Tower's results.

  • The Europe, Middle East, and Africa (EMEA) segment led the way this quarter, with revenue rising 19% to $155 million. The recent acquisition of FPS Tower in France helped lead the charge, though organic tenant billings grew 9.1% as the company signed customers up for more space on its existing towers.
  • The Latin America segment also grew at a brisk pace, with revenue jumping 14.5% to $298 million. One of the drivers was the recently closed purchase of 836 towers in Paraguay, which complemented a 10.2% increase in organic tenant billings. This segment should continue growing at a rapid rate since the company has another acquisition in the pipeline after agreeing to acquire urban telecommunication assets in Mexico for $500 million.
  • American Tower's Asia segment also delivered $298 million in revenue during the quarter, which was 10.2% above the year-ago quarter thanks in part to an 8.4% increase in organic tenant billings.
  • Finally, sales in the U.S. increased 8% to $904 million due primarily to a 6.3% increase in organic tenant billings. Meanwhile, the company bolstered its U.S. portfolio after the quarter closed by agreeing to acquire 500 sites for $465 million.

What management had to say

CEO Jim Taiclet commented on what powered the company's results in the third quarter by saying:

Our strong third quarter performance was driven by robust organic tenant billings growth of 6.3% in the U.S. and 9.3% internationally. Notably, in the U.S., our organic growth was supported by the widespread adoption of unlimited data plans among subscribers of all four national mobile operators. According to independent industry analysts, subscribers who switch to these unlimited plans consume up to two times more mobile data on a daily basis.

When American Tower buys a portfolio of cell towers, they typically have just one tenant per tower, especially when it purchases them from a mobile operator. However, because these towers can hold multiple tenants, one of American Tower's priorities is to secure additional leases. That drives organic growth and helps improve its overall investment returns.

One of the factors driving customers to lease more tower space is that mobile users are consuming more data. Taiclet expects that "annual mobile data usage in the U.S. will continue to expand by an average of at least 25-30%" over the next five years. That's enabling tower operators to forecast healthy growth rates in the coming years. For example, U.S.-focused Crown Castle (NYSE: CCI) believes that it can grow the cash flow of its existing tower portfolio to support 7% to 8% long-term dividend growth for its investors by organically adding more tenants. That said, Crown Castle's projection is less than American Tower's anticipated double-digit dividend growth rate because Crown Castle has yet to venture into international markets, which "will grow even more rapidly," according to Taiclet. 

Looking forward 

Taiclet said that these data trends should "drive substantial demand for tower space and support solid long-term AFFO per share growth for American Tower." That's certainly reflected in its 2017 guidance, where the company expects revenue and consolidated AFFO to be up 14.6% and 16%, respectively, at the midpoint. That's an improvement from the 14.3% and 14.8% growth it guided last quarter due to the positive impact of foreign exchange rate fluctuations.

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Matthew DiLallo owns shares of American Tower and has the following options: long January 2019 $80 calls on American Tower and short April 2018 $130 calls on American Tower. The Motley Fool owns shares of and recommends American Tower and Crown Castle International. The Motley Fool has the following options: short April 2018 $130 calls on American Tower and long January 2019 $80 calls on American Tower. The Motley Fool has a disclosure policy.