The Telstra Group Ltd (ASX: TLS) share price could be an appealing buy for a few different reasons.
I think it’s in an attractive industry – many households and businesses are very willing to pay for their internet connection and for their mobile data. It seems to me like a defensive pick.
But, there’s more to the positive case for it than just being defensive.
Growing subscribers
Telstra has been incredibly successful at growing its subscriber numbers over the long-term, which speaks to the attractiveness of the mobile network that the company regarding reliability, speed and coverage.
In the FY24 result, Telstra reported its mobile handheld users increased by 4.1% year on year. It added 562,000 handheld users, which led to its user totals being 8.94 million postpaid retail users, 3.1 million prepaid retail users and 2.36 million wholesale users (where Telstra provides the underlying service).
The continuing growth of user numbers helps drive the company’s revenue (and, ultimately, the Telstra share price).
Rising subscription prices
The market power of Telstra’s network has allowed the business to implement mobile price increases during this period of high inflation.
In FY24, the average revenue per user (ARPU) increased by 2.1% year on year to $42.89 per month. Excluding a pre-paid one-off, the ARPU increase was 2.7%.
Telstra recently announced another price rise for its mobile prices, which should help increase the ARPU in FY25.
Operating leverage
The great thing about Telstra’s business model is that adding an extra user can help increase profit margins for the company. That’s because Telstra doesn’t see much of a cost increase from having that extra user. A significant part of its costs are fixed. It needs to spend whatever it costs on building its 5G network, whether it has 14 million subscribers or 15 million.
In FY24, Telstra saw its mobile division grow income by 5% to $10.7 billion and it increased its EBITDA – a measure of day-to-day profit – by 9% to $5 billion.
Final thoughts on the Telstra share price
With growing earnings and a rising dividend, there’s a lot to like about the telecommunications giant.
If revenue and margins keep rising, the company should be onto a winner, as long as it doesn’t take advantage of customers’ willingness to pay too far. Low-price competition could try to win over disgruntled customers if they don’t think they’re getting good value. Aside from that thought, I’m optimistic on the company’s long-term future.
