Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is Vodafone Making Money?

I wonder is Vodafone making money, because the telecom’s revenues fell substantially in 2018. Specifically, the Vodafone Group PLC’s (NASDAQ: VOD) revenues fell from $65.953 billion in March 2018 to $58.221 billion in March 2019.

Moreover, Stockrow estimates Vodafone’s revenue growth rate shrank by 10.36% in the same period. Confusingly, Vodafone reported a gross profit of $18.008 billion, an operating income of $140 million, and a net income of -$10.192 billion on 31 March 2019.

Therefore, Vodafone is losing money and its revenues are shrinking. However, Vodafone’s customer base is growing slightly in some markets. In Germany, for example, the number of Vodafone subscriber grew from 10.26 million 2017-2018 to 10.31 million in 2018-2019, Statista estimates. Conversely, Vodafone’s German user base is still down from its high of 10.68 million in 2014-2015.

Is Vodafone’s Customer base shrinking?

Vodafone still has a lot of value because it serviced over 500 million customers in 26 countries worldwide in 2018.

Impressively, Vodafone was the most valuable brand in the United Kingdom in 2019, Investopedia claims. Additionally, Investopedia lists Vodafone as the world’s fourth largest telecom behind China Mobile Limited (NYSE: CHL), Verizon (NYSE: VZ), and AT&T (NYSE: T).

Vodafone Idea is the leading telecom in India; with 387 million subscribers in May 2019, Statista estimates. Significantly, Vodafone Idea had 212.52 million users in December 2017, Statista calculates.

Thus, Vodafone’s customer base is growing even though its revenues are shrinking. Unfortunately, the financial numbers show Vodafone could be making no money from the Indian market.

How Much Cash is Vodafone Generating?

Vodafone has a lot of customers but how much cash does it generate? The answer is a lot, but Vodafone’s cash is also down.

The annual operating cash flow, for example, fell from $18.978 billion in March 2018 to $17.307 billion March 2019. In addition, the free cash flow fell from $12.167 billion in March 2018 to $10.629 billion a year later. However, the financing cash flow rose from -$10.089 billion in March 2018 to $5.916 billion in March 2019.

Impressively, Vodafone had $35.532 billion in cash and short-term investments on 31 March 2019. In detail, Vodafone had $18.183 billion in cash and equivalents and $17.349 billion in short-term investments.

Thus, Vodafone is a cash-rich company that can easily survive the current revenue drops. However, Vodafone will need to grow its revenues significantly to survive.

Can Digital Currency Save Vodafone?

Notably, Vodafone controls the world’s most successful digital currency M-Pesa through its Safaricom subsidiary in East Africa.

M-Pesa is an unencrypted digital currency that has been around for 12 years, since March 2007. Interestingly, the Reserve Bank of India authorizes M-Pesa for use in that country. Therefore, M-Pesa is available in India.

Vodafone estimates there were 13.4 million M-Pesa users outside Kenya in December 2018, Business Daily reports. In addition, M-Pesa revenue from Tanzania, the Democratic Republic of the Congo, Mozambique, and Lesotho grew by 30.3% in 2018. M-Pesa’s revenues outside Kenya were $61 million or $6.28 billion Kenyan shillings in 2018, Business Daily estimates.

In addition, M-Pesa now accounts for 16.4% of Vodafone’s East African service revenue, Business Daily claims. Vodafone owns 35% of Safaricom. Moreover, Vodafone estimates the M-Pesa ecosystem processed 237 transactions a month in 2018. Plus, M-Pesa usage grew by 24.2% between 2017 and 2018.

Can Cryptocurrency Boost Vodafone?

Not surprisingly, Vodafone is researching next generation digital currencies or cryptocurrencies. In particular, Vodafone is a partner in Facebook’s (NASDAQ: FB) Project Libra cryptocurrency scheme.

Libra is a proposed cryptocurrency Facebook could transmit through WhatsApp, Instragram, and other Facebook social media. Few details of the Libra cryptocurrency are available but Facebook could release Libra in 2020. Facebook’s intent at Libra is to offer a cryptocurrency that people in developing nations could use.

The extent of Vodafone’s involvement in Project Libra is hard to ascertain. In addition, there is no evidence of a connection between Libra and M-Pesa.

However, I think Vodafone is a good investment for both digital currency and cryptocurrency. Importantly, Vodafone is one of the few companies with experience with a digital currency in the real world.

In fact, people can use M-Pesa to pay their wireless bills in India and Kenya. In addition, some companies let Africans buy appliances and electronics with M-Pesa installment plans. Plus, the charity GiveDirectly allows Americans to give M-Pesa to poor Africans through a phone App.

Is Vodafone a Value Investment?

Given the numbers, many will wonder if Vodafone (NASDAQ: VOD) is a value investment because it shares were trading at $18.32 on 30 July 2019.

Moreover, Vodafone will pay a dividend of 46.4₵ on 2 August 2019. That dividend is up from 55₵ on 1 February 2019 but down from $1.95 on 3 August 2018. Hence, I consider VOD a good dividend stock but the dividend is shrinking.

Vodafone gave investors a dividend yield of 4.96%, an annualized payout of 91₵, and a payout ratio of 64.4% on 30 July 2019. In addition, credits Vodafone with two years of dividend growth.

In conclusion, I think Vodafone is a value investment because it is a cash-rich company with a growing ecosystem. Additionally, Vodafone has some interesting technological capabilities and experience that could give it an edge in the race to commercialize cryptocurrency.