- New CEO targets massive operational streamlining
- Market left unimpressed by growth ambitions
- Total returns have averaged a piddling 0.66% a year over past decade
Big workforce layoffs have been a common theme linking technology-based businesses this year (and in 2022). A big question facing Vodafone’s (VOD) retail investors is why it’s swing of the jobs axe, unveiled today (16 May), is not getting markets excited like it has on the other side of the Atlantic.
Share prices of big tech companies like Alphabet (GOOG:NASDAQ), Microsoft (MSFT:NASDAQ) and Facebook-owner Meta Platforms (META:NASDAQ) have uniformly romped higher in recent weeks thanks to commitments to streamline bloated work forces.
Vodafone, by contrast, has seen its share price plunge more than 4% in the wake of its own announcement of plans to axe 11,000 jobs over the next three years across its UK and overseas operations.
Sure, Vodafone is not a high-quality tech business in the way that Microsoft, for example, is, but it does play into some similar themes; a work-from-home enabler, cloud computing, the shift to digitisation, for example.
PRICING POWER IS SHOT
Yet that’s about as far as we can reasonably stretch any correlations between these businesses. At its heart, Vodafone is a seller of a commodity product (airtime and broadband) with few growth levers to pull and little or no pricing power. Unlike Microsoft, which simply passed on higher inflation to customers through higher pricing, rampant cost-of-living pressures are a curse for Vodafone, acting as a trigger for millions of subscribers to look for a better deal elsewhere.
At the end of the day, one mobile network is much like any other.
New chief executive Margherita Della Valle is clearly keen to stamp her authority on the company, and the CEO’s stark assertion that performance had not been good enough is the sort of message the market wants to hear after the failures of a string of bosses to arrest Vodafone’s more than decade-long decline.
‘With her strong words accompanied by a plan to remove 11,000 staff from its payroll in just three years, Della Valle has signalled she is not messing about,’ said AJ Bell investment director Russ Mould.
CANNOT CUT YOUR WAY TO GROWTH
But it will take more than just streamlining the business to make it a beast fit for the 21st Century world of modern communications. Della Valle apparently wants to focus on Vodafone’s business-to-business operations to generate much needed growth, yet in the UK, the company still can’t get its 51:49 merger with Three UK sorted out more than a year after its intentions were first revealed.
‘Quite why what should be a compelling deal for both is taking so long to consummate is a bit of a mystery,’ admitted Megabuyte analyst Philip Carse.
Retail investors have for years been willing to overlook Vodafone’s serial flopped attempts to generate real growth because of the hefty dividends paid out. But you cannot cut your way to growth, and with every passing day shareholders are losing capital value.
Morningstar calculates annualised returns (capital plus income) have averaged just 0.66% over the past decade. Investors could have got nearer 5.5% from investing in a simple FTSE 100 tracker.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (James Crux) own shares in AJ Bell.
