StarHub Ltd’s Mobile Revenue Fell In 2016, But Here’s Why Management Thinks It Will Grow Again

StarHub Ltd (SGX: CC3) reported its 2016 fourth quarter earnings in early February.

In 2016, the telco earned $634.8 million in revenue. Of that, $567.1 million came from Service revenue, which is made up of four business segments, namely, Mobile, Pay TV, Broadband, and Enterprise Fixed.  Of the quartet, Mobile is by far the most important segment to StarHub’s Service revenue; the segment accounted for 55% of Service revenue in 2016.

However, the Mobile segment is facing some headwinds. In 2016, the segment reported $1.2 billion in revenue, a figure that was 2% lower than in 2015.

Rising subscribers but falling sales

To be sure, StarHub’s Mobile subscriber base is still growing.

At the end of 2015, the telco recorded 862,000 pre-paid subscribers and 1.33 million post-paid subscribers. At the end of 2016, the number of pre-paid and post-paid subscribers had climbed to 920,000 (a gain of 58,000) and 1.39 million (a gain of 62,000), respectively.

This is summarized in the slide below:

2017-02-03 Starhub Mobile Subscribers
Source: StarHub’s earnings presentation

The reason behind Mobile’s lower revenue despite enjoying a rising subscriber base can be traced down to lower usage. In StarHub’s 2016 fourth quarter earnings briefing, chief executive officer Tan Tong Hai said:

“The usage revenue in the mobile has actually dropped, and that’s the reason why you see the mobile revenue drop.”

Alternative services such as Facebook’s Whatsapp, which offers messaging and voice calls, could have led to lower usage of a telco’s traditional voice and roaming services. However, Tan is not deterred by the decline. He noted:

“… but mobile, as I say, it’s subscription revenue is still growing steadily. It is just that the usage revenue has dropped, and to a certain extent, once the usage revenue has stabilised, then you will see the mobile revenue growing again.”

In short, Tan believes that usage will eventually stabilize. And if the subscriber count at the Mobile segment continues to go up, StarHub’s Mobile revenue will follow. Tan also highlighted the importance of the Mobile business:

“So I’m still bullish about the mobile part, because mobile, you’re using the phone as a hub. Literally, the phone is indispensable, and a lot of the apps, if you look at it from enterprise or consumer perspective, it’s all done on the phone. So mobile will still remain.”

The segment is also important to StarHub’s profit margin. In the earnings briefing for the first quarter of 2016, Tan said that the Mobile segment has the highest profit margins among the others that make up StarHub’s Service revenue.

How StarHub’s Mobile segment performs would be a key area to watch in 2017 and beyond.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Facebook.