In February, Vodacom released an investor presentation to remind the market of what the company sees as its long-term potential.
There’s some really good stuff in there, pointing out the different growth levers and what they could mean over time. With the share price trading at the same levels seen in 2012, it will sadly take some doing to convince the market that this share price is capable of returning anything more than dividends.
The problem is that Vodacom has found itself on a treadmill. The products get cheaper every year. Users probably pay much less now on cellphone contracts than they did 10 years ago — and that’s without adjusting for inflation. Wi-Fi is just about everywhere for the middle class and up, which means cellphone data is used while travelling. For low-income South Africans who aren’t so lucky, data is the lifeblood for their access to information and thus price competition in that space couldn’t be hotter.
To compound these challenges, devices are lasting much longer. More people have separated the device decision from the contract decision, unlike in the early days of the cellphone boom when going to Vodaworld with the family was an event.
Your parents getting a new cellphone was cause for celebration as a teenager, followed by extensive negotiation to convince them that they couldn’t possibly have the same use case for that phone as you might have. It was a rather wholesome time in the world and one that the average Gen Z (or younger) consumer would find hard to believe.
It’s not going to get any better in the core business. Smartphones and data keep getting cheaper. A traditional voice call is practically unheard of among younger generations, who see it as an affront to their privacy. Instant messages and voice notes sent over Wi-Fi simply do not pay the bills at Vodacom.
So, what to do? If you can’t beat ’em, join ’em seems to be the approach taken by telecommunications groups as they push into fibre solutions. The long-stop date for the proposed deal with Maziv (the Remgro business) has been extended for the umpteenth time as the parties try desperately to convince competition regulators to let them go ahead. It seems unlikely that Vodacom’s growth conundrum will be solved through deal-making in South Africa.
This leaves it with only one choice: pursue growth in markets that are at a more lucrative point in the smartphone adoption cycle. In other words, markets that would get excited about a Vodaworld if they had one. The investor presentation makes this point in the form of statistics about population growth and smartphone penetration as key growth flywheels.
The important final step in that dance is expansion of the addressable market beyond just traditional mobile services. This is where things start to get trickier, as telecoms companies are muscling their way into the space traditionally owned by banks, insurance companies and content streamers.
CEO Shameel Joosub himself sold shares worth R20m in February. That should scare Vodacom bulls (of the non-rugby variety)
For example, it’s possible to pay for an Amazon Prime subscription through a Vodacom account. Vodacom acts as a distributor in this case, solving the payments step for Amazon and promoting its services to the Vodacom customer base. IM has no doubt that a commission is earned along the way, as with other services provided through smartphone channels.
It sounds like a strong strategy, yet it isn’t new and a quick look at the share price chart tells us shareholders haven’t been rewarded yet. This is largely because of the challenges of frontier markets, particularly in terms of currency volatility.
Though not related to Vodacom, MTN Uganda is a spectacular example of what is possible in a stable economy with high growth. Sadly, these examples are few and far between in Africa.
About half of the journey to double-digit earnings growth in Vodacom’s plan is dependent on Egypt. For all the prettiness of the Vodacom presentation, that’s substantial concentration risk linked to a country where the currency has lost two-thirds of its value vs the rand over five years.
Despite this, Vodacom is up 16.8% year to date, making it one of the best-performing local stocks in 2025. Without forex adjustments, recent quarterly numbers looked great. Sadly, ignoring those risks just isn’t appropriate, so the market should’ve focused on growth reported in rand instead. Perhaps a modest uptick in South African revenue drove the rally.
Either way, the earnings multiple of 15.7 is well above the three-year average of 12.8 and CEO Shameel Joosub himself sold shares worth R20m in February. That should scare whichever Vodacom bulls (of the non-rugby variety) are still out there.
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