Hope was there, lurking in amongst all the woes revealed by Vodafone yesterday. Competition is forcing prices down, and whichever way you look at things, it’s difficult to envisage the company making the kind of margins it is used to. Except, that is if you look in one direction: because there, gleaming with optimism, is a tiny little nugget of information. This ray of hope was not presented by Vodafone, rather from a much less likely source, and it’s fragile, could easily wither and die, but yesterday, Vodafone too revealed it was aware of this glimmer. But will it be enough?
The Vodafone share price does things differently. Earlier this year, when markets were soaring, the Vodafone stock went into near freefall. More recently, however, when turmoil hit the markets, the Vodafone share price started something of a mini comeback. And yesterday we saw another bad day at stock exchanges throughout the world, and yet, despite Vodafone announcing the biggest ever loss by a European company, shares in the mobile company were relatively stable. Visit this site to see Vodafone versus the FTSE 100 this year Yahoo.
Now Vodafone is changing strategy. Gone is the “purely mobile” dictum that dominated strategy for years. Gone are the empire building ambitions seen under the previous management regime. Instead Vodafone is a company that is embracing converging technologies, computers and mobile phones, broadband and fixed line telephony. And yet, in a world that is seeing ever fiercer price competition where are the margins to come from?
The big loss lay in past mistakes. Back in the heady days of the beginning of this millennium, realism seemed to go out the window, as all the big players paid over the odds for 3G licenses, and Vodafone forked out £112bn for German company Mannesmann.
Yesterday, this asset was re-valued, downgraded by around £23bn. And this was behind the massive losses, (£14.9bn in all) posted by the world’s largest wireless provider yesterday.
In fact operating profit was actually not half bad £8.8bn. The company put on another 21 million new users too, and investors were pleased to note that the company is embracing new opportunities. It’s to offer broadband, it will go head to head against the BT Fusion phone which offers both mobile and fixed line calls. It will also offer more PC related services, and plans to go down the VoIP route.
And shareholders were allowed room for celebration, as it announced a £3bn dividend payout, on top of the £6bn already allocated. Earlier this year, the company sold its Japanese subsidiary, Softbank, a sign of a company becoming more focused on its core markets. Yet some were disappointed yesterday, when the company said it was keeping its 45% stake in Verizon, the US market leader.
There is a snag with all this. It’s all very well offering broadband and VoIP, but price competition in these areas is ferocious. Carphone Warehouse and Wanadoo are now both offering free broadband, Skype is free between members, while fixed line telephony just does not make money like it used to that’s why BT has been looking for extra strings to its bow.
But then yesterday Vodafone also talked about advertising. Thomas Geitner, who is in charge of developing new services, said, “The emergence of online advertising is to us clear evidence that consumers have accepted advertising as a way for services to be funded and it has proved a genuine revenue opportunity.”
And that brings us to the nugget of good news. Because while Vodafone was busy trying to tell us why a record loss was in a way a good thing, advertising buying company, GroupM revealed that it believed advertising on mobile phones was about to mirror the growth seen on the net over the last few years. It expects mobile phone advertising to double this year, and then again next.
But, there’s a long way to go. Right now, the market for mobile phone advertising is small. And even after this rapid growth, GroupM is saying that it will only be worth £120mn next year. And that’s why we say the hope we saw lurking in the Pandoras box of Vodafone woes is still a fragile thing
Vodafone’s £9bn investor sweetener
© Investment & Business News 2013