Vodafone is becoming a perpetual disappointment. A rally in the middle of last year proved short-lived, and now the company is really struggling in its key German market.
VOD shares were down 5% at the time of writing after releasing Q3 results.
Vodafone has posted a 5.0% increase in total revenue to €9.8 billion for its third quarter, driven by organic service revenue growth, though partially offset by unfavourable foreign exchange movements.
The telecommunications giant saw its group service revenue climb 5.6% to €7.9 billion, with organic growth of 5.2%, marking an improvement from the previous quarter’s 4.2%.
Group Adjusted EBITDAaL rose by 2.2% on an organic basis to €2.8 billion, although the adjusted EBITDAaL margin contracted by 0.5 percentage points year-on-year to 28.8%.
However, for all the positivity around the top line and EBITDAaL, Q3 operating profit saw a significant decline of 18.4% to €1.0 billion.
The company’s financial performance was strong in some markets, with particular momentum in the UK and Africa. It was the slowdown in the key German market – accounting for 34% of Vodafone’s group service revenue – that was the major disappointment for investors.
German Market Headwinds Persist
The German operation continues to face significant challenges, with revenue declining by 7.6% to €3.1 billion in Q3. Service revenue in Germany contracted by 6.4%, slightly worse than the previous quarter’s 6.2% decline.
This downturn was largely attributed to the impact of recent TV legislation changes affecting Multi Dwelling Units (MDU), which came into full effect in July 2024.
The German fixed service revenue experienced a particularly sharp decline of 10.7%, while mobile service revenue decreased by 1.0%.
The implementation of a national roaming agreement with 1&1 has seen slower-than-anticipated customer migration, though this is expected to accelerate in coming quarters.
“After enduring their fair share of disappointment, Vodafone investors were treated to an upbeat trading update this morning as the telecoms giant looks to break free of the “one step forward two steps back” performance that has plagued the business in recent years,” said Mark Crouch, market analyst at investment platform eToro.
“Internal cost cutting coupled with sales of underperforming assets mean Vodafone has boosted revenues while maintaining generous shareholder returns. However the mammoth task facing the company is by no means complete. With so much being pinned on a merger with Three UK, which has at last been given the green light, it is perhaps not surprising that investors haven’t poured in to invest, underlining the issues still facing the company.
“Whether or not the deal goes through. Challenges remain for Vodafone. Unable to simply raise prices to prop up the balance sheet – something they’ve learned the hard way in Germany with declining customer numbers – Vodafone will need to come up with something other than asset sales and price hikes if they are ever to recapture their former glory.”