Over the course of May, Vodafone (LSE:VOD) was one of the worst performers in the FTSE 100. Vodafone shares dropped by over 18% in a single month, taking the one-year fall to 39%. It’s no coincidence that the release of its fiscal 2023 results was in the middle of May, impacting the stock. Here’s what investors need to know, and what could happen next.
Fiscal 2023 was a year to forget
The main reason why the stock fell heavily was due to the underwhelming fiscal 2023 numbers. In fact, the CEO commented in just the second sentence that “our performance has not been good enough.”
Group revenue was broadly unchanged from the prior year, with no growth to the top line. There was a 145% jump in operating profit versus last year. However, this has to be taken with a pinch of salt, as a large part of it was the gain on disposing of the Vantage Towers business.
When we boil it down to the adjusted EBITDAaL (the aL add-on means after leases), earnings fell by 1.3% versus the previous year.
What were the problems? The company referred to the “worsening global macroeconomic climate, with higher energy costs and broader inflation”. It also referenced underperformance in Germany, which is one of the key markets for the group.
Outlook isn’t much better
Aside from the disappointing results, another reason for the decline in the share price is the outlook going forward.
Earnings for the coming full year are expected to be broadly flat. This doesn’t really inspire confidence in investors to look to buy the stock for their portfolio. There are plenty of exciting growth stocks out there that have more compelling stories.
Vodafone doesn’t fit the bill of being a growth stock, yet it also isn’t really a defensive stock for investors to buy in times of economic uncertainty. It operates in volatile areas such as Turkey and Egypt. For example, with the political uncertainty in Turkey due to the recent elections and heavy currency depreciation, the year ahead could be difficult financially.
Tough to make a case to buy now
From here, it’s tough to see how the share price is going to rally in coming months. The stock has been falling for the best part of the past five years. I feel something has to fundamentally change to turn the company around.
Granted, the new CEO knows this and has outlined changes. This includes 11,000 job cuts over the next three years. The company is going to invest heavily in the customer experience and brand. Another initiative is reviewing the businesses in Germany and Spain to try and boost performance.
This refreshed and leaner organisation could be a competitive firm several years down the line. Yet when looking at where’s the best place to allocate money right now, I feel investors have plenty of better options out there than Vodafone.
