Vodacom trading update

Yesterday we had a very impressive trading update from Vodacom. They really are making great inroads into the markets they have at their disposal. Let's delve straight into the numbers that cover the quarter ending 31 December 2011. Group revenue was up 12.2% driven by a record 27.3% increase in customers to 52.9 million. Wow that is a massive increase. I thought the market was fully penetrated? Obviously not. These guys can be marketing geniuses and because mobiles have become such a normal way of life and part of your status, special handset promotions and summer deals have really been successful in bringing new subscribers. Let's be honest, mobile communication is an absolute priority.

Data revenue impressively increased by 23.8% with a 41.2% increase in active data customers to 13.8 million. That is 26% of their client base and growing fast. Staying on this topic and what would have driven data consumption is the increase in smartphone users. 655 000 smartphones were activated during the quarter resulting in an overall figure of 4.8 million users. It's big but still a lot of room for growth. I don't doubt that this will snowball as smartphones become cheaper and more accessible.

From a regional perspective, the South African market again proved to be solid. Revenue grew 5.6% boosted by more customers, high voice revenue and good performance on data. Subscribers now sit at 31.7 million, up 25.4% for the year. The biggest negative was the decrease in ARPU's which was down 14.6%, R140 a client. I'm not too worried about this to be honest. The industry is shifting. With so many more clients, ARPU's are bound to decrease. Services like BBM and WhatsApp are also shifting the industry but making communication more accessible. It's the same story everywhere these days. Give clients free services and the money will come via different avenues, look at Facebook and Google. Where will this money come from? Our thesis has always been with data consumption.

Their international operations showed even more growth. This includes their operations in Tanzania, DRC, Mozambique and Lesotho. Revenue grew 45.2% and now constitutes 20% of group revenues. Data revenues grew 135.4% as the appetite for internet grows. Surprised that people in these countries want access to the awesomeness of the internet? Of course not, and the base is still low.

Unfortunately the update does not cover profits. I have a feeling margins will decrease as the industry gets more competitive and ARPU's decrease. As long as the increases in customers and data consumption makes up for this, the industry will be fine.

So is the stock a buy? I think you know my answer here. I like the industry, I like the company but we prefer MTN. Vodacom has a market cap of R150bil. That is R283 per subscriber. MTN have a market cap of R256bn and have 159 million subscribers. That is R161 a subscriber. Yes MTN subscribers should be worth less than Vodacom subscribers due to political risks and the sophistication of the South African market. But don't forget that MTN still have 20 million subscribers in SA and a whole lot more potential for penetration and new subscribers.