Market revenue fell 6% in Q1 2020, largely due to lack of sports revenue (which will bounce back), but backbook pricing woes also hit.
Broadband volume growth accelerated though, and may accelerate further as supply constraints ease.
The increase in working-from-home may also enhance demand for ultrafast, the best hope for a return to industry revenue growth.
The sector was hit harder than expected by COVID-19 with a 5ppt deterioration in service revenue trends and operators are now sounding a more cautious note.
H3G bucked the trend with improving service revenues thanks to lower exposure to COVID-related impacts and a shift towards indirect distribution—a change in strategy since the end of 2019.
The outlook is better for next quarter as some drags weaken due to the easing of lockdown. The business market remains particularly vulnerable however as the furlough scheme ends and economic weakness takes hold.
Fortnite has been kicked from mobile app stores over the ‘App Store tax’, the 30% cut that Google and Apple charge for in-app purchases.
Apple needs Fortnite to keep the iPhone attractive, but it also needs its revenue cut, as services have become a key part of its growth story to investors.
Apple can no longer set its ecosystem rules without regard for partners, as apps like Fortnite, Amazon and WeChat are so central to the utility of a smartphone.
BT’s June quarter results were predictably hit by COVID-19, with revenue and EBITDA dropping by 7%, but less predictably most of the hit was on mobile and business customer revenue, with consumer fixed resilient despite the suspension of sport.
BT’s full year guidance is cautious, with a 7% EBITDA decline at the mid-point, with much of this caution around further hits to its business revenue as government support is withdrawn.
BT’s full year guidance is cautious, with a 7% EBITDA decline at the mid-point, with much of this caution around further hits to its business revenue as government support is withdrawn.
The COVID-19 crisis and suspension of sport has hit Sky hard, with Q2 revenue falling 12.9% year-on-year, and EBITDA (while flat for now) expected to fall 60% in H2 as the rights costs from a condensed schedule hit the bottom line
Underlying trends are hard to discern amidst massive disruption, but the UK remains strong, and increasingly less dependent on sport, with continental Europe a work in progress to repeat this model
Longer-term initiatives continue, with new branded channel launches in the UK, broadband launched in Italy, and scope for further moves in Germany provided by significant sports rights cost savings following recent auctions
Microsoft hopes to buy TikTok from Chinese owner ByteDance before President Trump’s Executive Order halts transactions with the company in mid-September. Twitter is now in the game, but is unlikely to prevail
Worth tens of billions, TikTok would be the biggest acquisition in Microsoft’s history. This hot new digital platform has hundreds of millions of users and an ad business that could overtake Snapchat’s. Extracting the technology from ByteDance may take years
Selling TikTok to shake off anti-Chinese scrutiny would signal ByteDance’s abrupt exit from the digital world stage with a fabulous return on its investment, while letting TikTok users continue to enjoy the service. However, losing TikTok sinks the global growth story that ByteDance was lining up for its anticipated IPO
Along with the rest of the mobile market, O2’s results were harder-hit by COVID than expected, with service and total revenues down by 9% and 4% respectively.
O2 estimates an 8ppt drag on revenues from COVID—much higher than the 1.6ppt Vodafone figure—a question of definition and business mix. The overall COVID impact on the market looks to be tentatively easing from next quarter and O2 should fare relatively well in that bounce-back.
The decision to terminate the Carphone Warehouse relationship will cause some short-term technical drags on performance but creates an opportunity to improve profitability. Reopening of O2 stores post lockdown will help to compensate for forfeiting Carphone as a route to market.
Facebook grew revenues by 11% in Q2. This rate is higher than investors expected, but still driven to record lows by the pandemic slowdown. It forecasts 10% growth in Q3.
The company is under very public pressure over its moderation of hateful content, with upwards of 1,000 advertisers joining a month-long boycott, while other online platforms institute tougher policies on hate.
Facebook’s world-beating ad product and 9 million-strong bench of active advertisers means an organised boycott can’t hope to dent its growth. A coalition of advertisers, users, staff and regulators could make it take notice.
Vodafone’s performance this quarter was hit both by COVID and an underlying deterioration in its operational momentum—disappointing given regulatory easing and easier comparables.
Vodafone’s guidance has been more prudent than most going into this pandemic and these results support that cautious stance. Whether it’s a case of Vodafone underperforming or the sector being less resilient than expected will emerge over the coming weeks.
The IPO of Vodafone’s towers business is imperative to maintaining its leverage targets and dividend. It will need to sell a chunky slice of equity and realise a hefty multiple in challenging market conditions. The profile of the asset for sale will help but it all remains very finely balanced.
TalkTalk started its new financial year with revenue growth declining to -8% in Q1, although this is partly lockdown-related, and costs have also declined as churn plummeted.
While backbook pricing continues to be a challenge, new customer pricing continues to firm, which makes its expectation of stable/growing EBITDA for FY2020/21 possible albeit still difficult.
The company expects to launch full fibre products from Openreach imminently, and from CityFibre before the end of the year, with the adoption and eventual economics of these crucial to its medium and long-term future.