Now Vodafone (LSE: VOD) (NASDAQ: VOD.US) has sold its holding in joint venture Verizon Wireless, which regularly contributed around £4bn to Vodafone’s bottom line, the company’s profits are going to take a hit.
Indeed, current City forecasts predict that Vodafone’s pre-tax profits will slump 57% between 2014 and 2015. So, to try and combat this decline, Vodafone’s management has gone on an international shopping spree.
European shopping spree
Vodafone started looking for acquisition targets within Europe and found plenty of opportunities. For example, the company has acquired Spain’s Ono for £6bn, and Germany’s Kabel Deutschland.
However, it remains to be seen if these acquisitions will be able to fill the void left by Verizon Wireless. Specifically, Ono reported a net loss of €25m for 2013, down from a small profit of €52m during 2012 and Kabel Deutschland only reported a net profit of €250m for 2012.
Combined, these two investments are likely to yield income of €300m per annum for Vodafone, hardly filling the void left by Verizon. Still, as a pan-European telecommunications and pay-tv giant, Vodafone should be able to realise significant synergies from these two deals, which could result in a higher level of income.
Seeking growth in emerging markets
Outside of Europe, Vodafone is also looking for attractive acquisition targets. Only last week the company completed the full takeover of its Indian business, allowing the firm to improve its competitive position against market leader, Bharti Airtel.
Elsewhere, according to some sources, Vodacom — Vodafone’s African unit — is close to acquiring South African telecoms company Neotel Pty, from India’s Tata Communications. There is also talk that Vodafone will make an offer for the remaining 45% stake in Vodafone Egypt the company does not already hold.
India and Africa, account for 216 million customers, more than twice Vodafone’s subscriber base in Europe. In addition, Vodafone has investments in Ghana, Qatar, and Turkey.
New technology
Aside from Vodafone’s acquisition spree, the company is looking to increase its presence within the highly lucrative mobile payments market, using a technology developed within Africa.
Vodafone’s subsidiary, Safaricom owns the mobile payment system M-Pesa, which was launched several years ago with the UK government, as an overseas aid project. The mobile money service handles the equivalent of a third of Kenyan gross domestic product a month in text-messaged cash.
Now, Vodafone is bringing this fast growing payment system to Europe where it has the potential to revolutionize Europe’s mobile payment network.Â