NetOne posted losses despite 96% revenue growth in 2021, failing to meet targets in 2022

We don’t usually get to peek behind the curtain at NetOne. And even when we do, we don’t get to look under the carpets.

We have to work with what we get. NetOne recently held their annual general meeting and we now have a better picture of what their 2021 was like.

Inflation adjusted profit grew by 96% from 2020 levels. That is a huge increase. It would be impressive if this were any other economy.

Inflation roared in 2021 and we have to know how they adjusted for that inflation. We can assume they used a 1.66 conversion factor, the same Zimbabwe Consumer Price Index that Econet used in their accounts.

We went through how these conversion factors cannot be accurate. However, assuming it was the same 1.66 that Econet used, it means NetOne’s revenue grew by 96% in mostly the same period that Econet’s grew by 50%.

Where did this growth come from?

NetOne added a whopping 779,278 subscribers in 2021, taking their total to 4,472,592. In a country of 15 million people that is an impressive stat.

However, getting subscribers is only the first hurdle. Getting them to spend money is the hard part. We saw how Telecel is only pulling in US$1.30 per subscriber per month. NetOne is faring better in that regard.

NetOne’ revenue per user in 2021 was around ZW$4,133 per month or US$38 using the rates at the end of that year.

It should be remembered though that 2021 was a weird year where lockdowns were in effect for a significant part of the year.

That led to higher than normal data usage. We see this reflected in the fact that data revenue contributed 50% to NetOne’s total revenues in 2021. In the first half of 2022, that contribution dropped down to 44%. Still high but likely to fall again as we leave lockdowns in the past.

NetOne’s OneFusion and One-Fi products are really popular in the market. They are usually competitively priced. That comes with that whole problem of growing by undercutting the competition. NetOne has had to contend with lower margins than the market leader, Econet.

What is clear though is that NetOne wants to move away from these promotions. We saw them try to charge US$800 for 80GB earlier this year. That was excessive but I felt like it was an admission that lower prices may be working against them in the fight to unseat Econet.

NetOne posts losses

The 96% growth in revenue was offset by a 46% increase in operating costs driven by staff and marketing cost increases. After considering exchange rate losses, NetOne was left with a loss.

In contrast, Econet had a weaker 50% increase in revenue but ended up with a 1130% increase in profits.

You will recall that Econet advised shareholders not to make decisions using those results. I think it’s because they paint a rosier picture than what really was.

With that in mind, you can see how one could be worried about NetOne’s losses. After adjusting for inflation using what I think/assume are inaccurate conversion factors, they still posted losses.

While I understand that exchange rate losses were chiefly to blame, Econet is also operating in the same economy and yet posted profits. On the other hand though, NetOne inherited some loans from the unbundling of PTC.

The operating environment

NetOne echoes the same sentiments Econet does. There is a shortage of foreign currency and telcos are not prioritised over ‘food security.’

… the greater part of operating costs for a mobile telecommunications company are paid in USD, with vendors for equipment and systems used to run the network demanding payment in foreign currency

NetOne

They went on to say they,

…continued to lobby for the allocation of more foreign currency required for the business to meet its foreign obligations and for the delivery of the latest technology to enable the business to offer customers world class services

NetOne

Then there are the power cuts and how they have affected service delivery.

Personally, I have felt it. I called NetOne once when I couldn’t use the internet despite having a valid bundle at the time. The friendly customer service lady I talked to told me point blank, ‘if there’s no electricity in my neighbourhood, there will be no mobile internet.’

It appears NetOne is selective on which neighbourhoods to power on diesel power. Mine did not win that particular ruffle. With power cuts becoming a staple you can see how NetOne kind of lost some of my business. How many other people are affected thus?

An exciting but challenging 2022 for NetOne

In the first half of 2022, NetOne was unable to grow their subscriber number after a good 2021. They closed 2021 with 4.47 million subscribers but that was slightly down to 4.41 million by the end of June 2022.

I would imagine the crazy but subsequently reversed price hikes of February 2022 may have had a hand in that. The botched system upgrade that led to subscribers losing their data happened after June and so we may be looking at another report of slow subscriber growth come year end.

So far, in addition to the decline in subscribers, NetOne has failed to meet some of its other 2022 targets. Revenue for H1 2022 reached ZW$14.4 billion, which was $3.4 billion less than the expected $17.8 billion.

However, NetOne says usage volume growth continued to outpace inflation. If only we could get actual figures so we understand what that means. This is especially so because NetOne chalks the revenue growth mentioned above to subscriber and usage volume growth.

Using the figures they released we can see that there was no subscriber growth and so we are left wondering how accurate the statement that there was usage volume growth is.

I know that it’s been reported that NetOne weathered all storms and grew in 2021. However, it wasn’t as great a 2021 as it was made out to be. Interestingly, 2022 has been slower so far and we saw that the impressive subscriber growth realised in 2021 is already reversing.

With Telecel hobbling, we are all rooting for NetOne to build on the positives we see in their report. We pretty much have a two-horse race in the mobile network operator race and we need NetOne to keep Econet on its toes.

Also read:

Telecel revenues down 95% from 2015 levels, from US$14m to US$0.7m per month in 2022

Does Econet’s 1130% profit increase even mean anything? Benefiting from relatively low tariffs?