Can a pivot to the metaverse boost Vodafone’s share price?

The Vodafone share price has slightly outperformed the FTSE 100 over the past year, due to strong financial results. However, the company has been slightly held back due to its 47.6% stake in Vodafone Idea. To turn fortunes around, Vodafone Idea is now eyeing metaverse opportunities.

From the start of the year to 4 July, the Vodafone [VOD.L] share price has managed to climb 14.6% — far outperforming the FTSE 100, which has sunk 2.6% over the same period. This has mainly been driven by strong earnings, where the firm managed to see higher growth than expected.

However, Indian operator Vodafone Idea [IDEA.NS], which Vodaphone owns a stake in, has seen its share price fall 45.6% year-to-date and 8.2% over the past year. This decline has been driven by the company’s weak financial position, which is forcing the firm to issue more shares.

However, Vodafone Idea has recently signalled that it is exploring metaverse opportunities. In the long term, this may help the company attract customers as the technology continues to evolve and gain more prominence. As a result of its stake in the business, the Vodafone share price could gain further momentum.

Metaverse opportunities

The chief marketing officer of Vodafone Idea, Avneesh Khosla, states that it is “keenly following [metaverse] technology to see how it evolves”. He also stated that “it has the potential to deeply engage with consumers and enhance their digital experience”. This may help the company overcome the struggles it has experience over the past few years, mainly due to its overwhelming debt pile.

This outcome would greatly help Vodafone, which has been forced to finance Vodafone Idea during this struggle. Most recently, Vodafone acquired an extra 571 million Vodafone Idea shares through its subsidiary Prime Metals, which increased its stake from 44.4% to 47.6%. It also provided Vodafone Idea with more equity funding. Any gains in the Vodafone Idea share price following its metaverse expansion should, therefore, have a positive effect on the Vodafone share price.

Vodafone’s recent growth

Vodafone has experienced negative growth in recent years, with revenues falling from €45bn in fiscal 2020 to €43.8bn in 2021. Profitability has also remained inconsistent during this time. However, during fiscal 2022, there were signs of promising growth. For instance, revenues were able to grow 4% year-over-year to €45.6bn, while operating profits soared 11.1% to €5.66bn. As a result, the Vodafone share price has climbed slightly since the results were released on 17 May. As of 4 July, the stock was up 11% since the earnings announcement.

This growth also means that adjusted basic earnings per share for the group reached €0.11.

At the same time, there were some worrying signs for the group. For one, net debt increased to €41.5bn, up from €40.5bn the year before. As interest rates increase, it is likely to become more expensive to service this debt. This will strain profit margins and may cause issues for the group moving forwards.

The Vodafone dividend

One of the main appeals of Vodafone shares is the company’s large dividend, which totalled €0.09 per share last year. However, this has remained entirely flat since 2019, and in 2018, the dividend totalled €10.23, more than double the €4.50 for full-year 2022. This helps to explain the 41% decline in the Vodafone share price over the past five years.

Based on the company’s recent financial results, the dividend is also only just covered by profits. This increases the likelihood of a cut, especially if profits sink.

However, the dividend still provides a healthy yield of more than 6%, which means that it may remain very attractive to income seekers.

What’s next for the Vodafone share price?

Unfortunately for Vodafone, analysts have been downgrading the stock recently. For example, the investment bank Jefferies recently downgraded the shares from ‘buy’ to ‘hold’, citing “intractable headwinds” for the company. Barclays and Credit Suisse also gave similar downgrades over the past few months. In March, Credit Suisse stated that earnings were likely to be lower than expected due to energy cost headwinds.

However, the consensus for the Vodafone share price remains moderately positive. According to MarketBeat, the firm has three ‘buy’ ratings and three ‘hold’ ratings. The average price target for the group is 166p, implying an upside of 29.2% on the 4 July closing price.