The Motley Fool

How Vodafone Group plc Makes Money

We all have a broad idea of what the companies in our portfolios do. But how much do you really know about their products and their markets, or how much each of their activities contributes to the bottom line? Understanding how a company makes its money can help you decide whether it’s a good investment.

The make-up of profits at Vodafone (LSE: VOD) (NASDAQ: VOD.US) is changing. The big payouts from Verizon Wireless that have fuelled Vodafone’s own dividends will be no more. The company has bought Kabel Deutschland and has a war chest for further acquisitions alongside its £7bn capex budget for Project Spring. What will the new Vodafone’s business look like?

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Bundling

The three themes of its Vodafone 2015 strategy were data, enterprise and emerging markets. Already 60% of mobile revenues come from contracts that bundle data and traditional voice/text together. But this is now overlaid with the theme of unified communications: combining some or all of mobile and fixed-line telephone, internet broadband and television. Vodafone has said it will ‘build, borrow or buy’ the fixed line infrastructure to provide unified communication.

Three-quarters of the company’s fiscal 2013 revenues came from mobile services. However, mobile revenues are under pressure from regulators seeking to reduce mobile termination rates and overseas roaming charges which together made up 13% of service revenues in 2013.

Enterprise

Vodafone’s enterprise business is roughly split into global enterprises, SMEs and Machine-to-machine (M2M) solutions. Global enterprises typically outsource their mobile phone requirements as a managed solution. SMEs are moving to bundled services much like the retail market. M2M includes applications such as chips on lorry fleets providing constant data.

Geographically, Vodafone has reorganised to combine its Northern and Southern Europe divisions, transferring Turkey to the faster-growing Asia, Middle East and Pacific division. It makes a cleaner distinction between developed and emerging markets.

Within Europe, Vodafone is market leader in both Germany and Italy, with around a 35% market share and roughly 30m customers in each. The company has a 25% market share in the UK with 20m customers.

Emerging markets

Around 30% of revenues come from emerging markets, but the vastly greater number of customers points to the growth potential.

Vodafone has 150m customers in India, where it has one-fifth of the market. Through its 65% owned subsidiary Vodacom, the company has 60m customers in Africa. Emerging market growth is expected to come from growing populations, increasing mobile phone use and increasing smart phone penetration, especially given the lack of fixed line infrastructure.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.

> Tony owns shares in Vodafone but no other stocks mentioned in this article.