Vodafone share price forms a risky pattern: Will it drop further after earnings?

Vodafone share price remained on edge on Tuesday after the company published its financial results, which showed that its growth continued. It has slipped by over 13% from its highest point this year, meaning that it has moved into a technical correction. Technicals suggest that the stock has more downside in the near term. 

Vodafone shares fall despite strong numbers

VOD stock has been in a slow downward trend in the past few weeks, a trend that may continue in the coming weeks. In a statement, the company said that its service revenue rose by 11.4% in the first half of the year to €21.9 billion, helped by its service revenue. 

The company’s growth also accelerated because of its recent acquisitions, including Safaricom, Three, and Telekom Romania. In Germany, its top market, organic service revenue rose modestly by 0.4%, even as its customer base dropped by 75,000 in the first half of the year.

The same growth happened in the UK, where its organic revenue rose by 0.9%, while in Africa, the revenue soared by 13.4%. 

Most notably, the company’s adjusted EBITDAaL, which jumped by 12.6% to €6.5 billion, while its net loss stood at €3.6 billion. The loss was mostly because of a non-cash charge, with the management citing:

“impairment in Germany, primarily driven by adverse changes in interest rates, and a write-down of deferred tax assets in the UK following the buyout of CK Hutchison Group Telecom Holding Limited from VodafoneThree.”

Most notably, the company upgraded its guidance for the year. It now expects its adjusted EBITDAaL will be between €13.2 billion and €13.4 billion, up from the previous €13 billion and €13.3 billion. 

Additionally, the company now expects its adjusted free cash flow to be between €2.8 billion and €3 billion. The management also expects that its Europe gross savings will be €2 billion through 2030. It continues cutting costs through job cuts, including in Germany, its biggest market. 

Vodafone faces challenges ahead

Vodafone faces some major challenges ahead. For example, like other telecommunications companies, there is a risk that the company will be disrupted by SpaceX, which recently acquired low-band spectrum in the United States. If this approach is successful, there is a likelihood that it will expand its services in countries where Vodafone operates. 

Vodafone is also losing market share in other countries. In addition to Germany, its UK mobile contract customer base dropped by 62,000 in the first half of the year. It also lost 65,000 customers in six markets, including Romania and Portugal. 

Vodafone share price technical analysis

Vodafone stock chart | Source: TradingView

The daily chart shows that the VOD stock has slumped in the past few weeks. It has dropped from a high of 132.20p in September to the current 115. 

The stock has slumped below the 50-day moving average. Most importantly, it has formed a head-and-shoulders pattern, a common bearish reversal sign in technical analysis. This pattern normally leads to more downside over time. 

The stock is also hovering along the Strong, Pivot, reverse level of the Murrey Math Lines tool. It has also dropped below the Supertrend indicator. Therefore, the most likely scenario is where the stock may drop to the Ultimate Support of the Murrey Math Lines tool at 100p. 

On the flip side, a move above the key resistance level of 125p will invalidate the bearish outlook and point to more downside.