What’s fueling Safaricom’s profitability?

Safaricom Ltd (NSE:SCOM) posted record profits in its fiscal 2016, which ended in March 2016. The management attributed the gain to robust mobile Internet business. Revenue for the fiscal year rose by double-digit percentage, driven in part by subscriber gain. CEO, Bob Collymore said Safaricom will continue to pursue more growth in mobile Internet by expanding its 3G and 4G network coverage.

FY2016 in numbers
Safaricom Ltd (NSE:SCOM)’s FY2016 revenue of Sh195.7 billion rose 19.9% over the previous year. Net income of Sh38.1 billion increased 19.6% over FY2015 and exceeded the company’s internal guidance of Sh36 billion.

Growth drivers
According to Safaricom’s chief, Collymore, increase in subscribers and a rise in mobile data usage fueled profitability in FY2016. Safaricom closed FY2016 with 25 million subscribers.

Performance by segment
Revenue in Safaricom’s mobile Internet business increased 42.7% to hit Sh21.2 billion and emerged as the fastest-growing division in the company. Mobile payment service, M-Pesa, generated revenue of Sh41.5 billion, up 27.2% from the previous year. A 19% increase in M-Pesa monthly active users to 16.6 million in FY2016 fueled revenue growth in the division. Safaricom also revealed that M-Pesa agents hit 100,744 in FY2015. It is worth noting that Safaricom operates mobile payment service with the widest geographical coverage in Kenya. Safaricom’s M-Pesa also boasts more features than rival services such as Airtel Money, owned by Kenya’s No. 2 wireless carrier Airtel Kenya.
Text revenue increased 10.6% to Sh17.2 billion while voice revenue rose 3.9% to Sh90.8 billion. Voice remains Safaricom’s largest source of revenue.

FY2017 outlook
Safaricom Ltd (NSE:SCOM) is betting on deeper smartphone penetration and expanded 3G and 4G coverage to drive growth in the coming years. The company is also trying to diversify revenue stream away from voice. Mobile Internet and M-Pesa are two promising businesses in the march toward revenue diversification.

For FY2017, Safaricom Ltd (NSE:SCOM) is hoping for EBITDA in the vicinity of Sh92 billion. EBITDA is a key measure of a company’s profitability and it stands for earnings before interest expenses, taxes, depreciation and amortization.