Vodafone Earnings Preview

With consumers seeing an erosion of their purchasing power, Vodafone might have to rely more on its ancillary services to secure growth. But is this enough for the share price?

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How much is a luxury?

Vodafone's strong market presence in mobile has given it a relatively secure position, but also provides limitations on growth. The company doesn't have any plans to break into new markets that would permit rapid growth in subscription numbers. On the other hand, having a cell phone is a practical necessity in our connected world.

While customers might face economic challenges and put off buying luxury goods, such as a new iPhone, they will maintain their mobile connection. Although Vodafone offers devices, they represent a fraction of the company's income.

Where Vodafone could find growth is penetration into one of the most lucrative tech markets in the world: the US. The company sold its participation in Verizon back in 2014, but last year has been ramping up offerings in enterprise solutions for businesses in America. This dovetails with increased offerings of additional services through its network, such as the launch of VodaPay in Africa last quarter.

What to look out for

Vodafone is projected to show just a marginal increase in revenue when it reports full-year earnings later this week. Which goes back to the mention of having a pretty solid market position in its key markets, and having a history of low-single-digit organic sales growth.

Therefore, the focus is likely to be on profitability metrics. In its last report, the company affirmed guidance of EBITDA of €15.2-15.4B, and investors are going to expect new guidance for next year to be above that range.

Cloud and IoT have been the major drivers in the tech space, and Vodafone has been slow to capitalize on them. This could provide some disappointment for investors, particularly if the firm keeps making large investments in this area.


Vodafone below 50-week average

Vodafone's share price has been at crossroads over the past two years as bulls failed to break past 143, forming a triple top. In the last attempt, confidence seemed to deteriorate following rejection at the 200-week average, leading to weaker bull price action off 133. This opened the way to the 50-week average, which eventually gave in only last week.

The upwardly-biased long-term formation off 92.80 resembles a triangle. Triangles are continuation patterns. If the stock remains below 120.00 then 92.80 is major support. In between, 106.30 and 100.58 are minor supports. Even in the case prices slide towards the closest support of 110.00, the ascending trendline might hold, but will likely offer a relief rally alone. If Vodafone’s stock price reverses back above the 50-week average, major resistance can be observed at 133. Below there a pit stop could be seen near 128.00

Source: Spreadex trading platform

Key takeaways

Vodafone has a strong presence in the mobile market, but other markets may have a better potential for growth. It has been ramping up its enterprise solutions in the US but it is projected to show just a marginal increase in revenue when it reports later this week.

Despite having a strong market position with a positive history of low single-digit organic sales growth, investors may be disappointed with how slow Vodafone has been to capitalize on Cloud and IoT.