Safaricom data and M-Pesa businesses are projected to provide more than 40 per cent of the firm’s revenue in the next four years, pushing the share contributed by voice revenue to below 50 per cent.
In a coverage note on the telco, Dyer and Blair Investment Bank said growth in use of smartphones would boost data revenue, backed by the improvement provided by the capital expenditure on network improvement over the past few years.
In the financial year ended March 2015, data provided 11 per cent of the Safaricom’s total revenue of Sh163 billion, while M-Pesa accounted for 20 per cent. The two lines of business are projected to contribute 16 per cent and 25 per cent respectively by 2019.
“Data revenue is expected to grow by 20.3 per cent in compound annual growth rate (CAGR) —the most aggressive revenue line growth driven by average revenue per user expansion and increased active customer numbers,” said analysts Duncan Lumwamu and Elizabeth Ndungu.
“The launch of 4G in Nairobi and Mombasa and consequently to other towns will drive increased use of data and a faster growth in the customer numbers.”
M-Pesa is forecast to grow by 15.5 per cent CAGR between 2016 and 2019.
Voice is projected to grow at a comparatively much slower pace at just 2.4 per cent. Eventually its total contribution to revenue should fall to 41 per cent in 2019 from 54 per cent this year.
READ: Safaricom future value linked to M-Pesa growth
The Dyer and Blair analysts say the average revenue per user for voice will drop as the growth in the number of new users slows down, while pressure will also come from the increased use of the data platform for communication, particularly within the youthful population.
In terms of valuation of the firm’s share at the Nairobi Securities Exchange, the analysts said the counter retains an upside with a fair value of Sh18.67 against today’s price of Sh14.40.
In contrast, Standard Investment Bank analysts Eric Musau and Faith Waitherero in a coverage note last month gave the share a downside with a fair value of Sh13.94, attributing the valuation to the expectation of stagnating expansion of voice revenues and slow growth in the mobile money business.
The M-Pesa segment faces competition from new entrants such as Equity Bank’s Equitel, which has lower transactional charges than M-Pesa service and has already attracted over one million users.
Mr Lumwamu and Ms Ndungu said the entry of the new players could bring in a new phase of tariff wars within the mobile money service, as it was the case earlier in the voice service which led to a steep decline in calling rates.
Analysts at Genghis Capital, however, said M-Pesa could still ride on its well established network of clients and agents to see out the effects of the increased competition.
“We opine that this product may not affect heavily Safaricom’s business lines, due to its robust infrastructure and well cut-out products on their money transfer platform, M-Pesa, which have attracted a wide network of client base,” said Genghis in a note following the Equitel launch two weeks ago.