Telecommunications

How Vodacom makes its money

Vodacom makes most of its revenue and profit from prepaid and contract services, with financial services and equipment contributing significantly to its top line.

Vodacom, majority owned by Vodafone with a 60.5% stake, is one of Africa’s largest telecommunications providers.

It has operations in South Africa, Egypt, Tanzania, the DRC, Mozambique, Lesotho, and Kenya, and its mobile networks cover 303 million people.

Through Vodacom Business Africa (VBA), the company also offers business-managed services to enterprises in 48 countries.

Service revenue is a core component of a mobile operator’s top line because of the high margins.

Vodacom currently generates 73% of its R80 billion service revenue in South Africa, with the balance generated internationally.

The rest of the revenue comes from equipment sales, financial services, fixed telecommunications services, mobile interconnect, and other services.

To ensure it maintains healthy margins, Vodacom makes sure that it has effective capital allocation with stable capital intensity.

Vodacom’s 13.02% return on invested capital is significantly higher than MTN on 9.06% and Telkom on 6.52%. Vodacom also has a much lower cost of capital than its peers.

It is, therefore, not surprising that Vodacom’s net profit margin of 16.71% is higher than MTN’s 7.57% and Telkom’s 6.15%.

How Vodacom makes its money

To make it easy for investors to see how Vodacom makes its money and where most of this money goes, Daily Investor created a breakdown based on the company’s FY2022 results.

It shows that prepaid service revenue is the largest contributor to overall revenue, followed by contract service revenue.

These two revenue streams contribute over 60% of total revenue, showing that Vodacom remains highly reliant on money from voice and data services.

Other prominent revenue streams are equipment sales, financial services, and on-service revenue.

Vodacom is investing heavily in growing financial service revenue through its Vodapay app, and this revenue stream is, therefore, expected to grow.

Vodacom’s biggest expenses include direct expenses, depreciation, operating expenses, and staff expenses.

The diagram below provides an overview of Vodacom’s revenue streams, expenses, and profit.

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