Vodafone Shares Continue to Drop Amid Disappointing Earnings
After the UK telecoms giant Vodafone reported declining revenues to its investors, the share price has slumped. Following a brief recovery, the Vodafone share price is once again taking a battering, despite winning new contracts.
- Vodafone shares sink after low FY results
- Vodafone share price briefly rallies following overseas contract news
- Morning of 25 May saw another drop from 129.60p to 127.86p
- Uncertainty remains around revenue sources, such as overseas roaming charges
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What is the impact of a turbulent week for Vodafone shares?
It has certainly been an interesting week for the UK telecoms giant Vodafone. Following the release of its highly anticipated FY results on 18 May, investors were dismayed to find that, despite the company maintaining a profit throughout the pandemic, revenues were much lower than had initially been projected.
The company ended 2020 with profits totalling £461 million, compared with a loss of more than £500 million in 2019. Nonetheless, this result was still lower than the company's lowest initial projections, prompting Vodafone shares to slump 9% last week.
A resilient company, Vodafone began this week with the news that it has recently won a telecoms license in Ethiopia. The company, in a joint ownership venture with Safaricom Ltd, will be investing $8.5 billion over the coming decade.
Nick Read, CEO of Vodafone Group, said ‘We want to play a transformational role in ensuring Ethiopia's huge economic and developmental potential is realised, through the deployment of next-generation connectivity and digital services, creating an inclusive and sustainable digital society.’ The news helped to fuel a brief rally in the share price; however, this was not to last.
A mixed outlook in the medium-term?
Despite being briefly buoyed by the news of the Ethiopia contract, the Vodafone share price promptly slumped once more as soon as markets reopened on 25 May. This is largely down to the fact that the contract's success was quickly thrown into doubt, following revelations from the White House that the US would be imposing sanctions on Ethiopia due to the recent conflict in the Tigray region.
This means that a $500 million loan from the U.S. International Development Finance Corporation that was promised to Vodafone Group for the project may not materialize, putting the plan in jeopardy.
In addition, long-term concerns over the viability of Vodafone's business model have also been weighing down the share price. Continuing travel restrictions mean that a top source of revenue for the company - roaming charges - is unlikely to recover anytime soon. Meanwhile, massive company investments in 5G and broadband infrastructure threaten to derail Vodafone's balance sheets for years to come.
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