Turkcell Iletisim Hizmetleri A.S. (NYSE: TKC) is a leading digital services provider operating in Turkey, Belarus, the Turkish Republic of Northern Cyprus, and the Netherlands. With a strong presence in Turkey, it boasts a substantial customer base of 20.4 million post-paid and 12.4 million pre-paid subscribers. As Turkey’s largest telecommunications company, Turkcell’s focus has shifted from merely expanding its customer base to maximizing revenue per user by offering value-added services.
The company’s operations span across three key segments: Turkcell Turkey, Turkcell International, and Techfin. Its offerings include mobile broadband, fiber connectivity, cloud storage, and business solutions. While its cellular business is mature, growth opportunities lie in its Internet and broadband segments. Turkcell has even explored the idea of taking its Internet business public, demonstrating its ambitions for continued growth. With a market cap of $6.3 billion, Turkcell remains a dominant player in Turkey’s telecommunications landscape.
Turkcell and Its Financial Resilience
Turkcell (NYSE: TKC) marked its 30th anniversary in 2024, celebrating with stakeholders and a notable closing bell ceremony at the New York Stock Exchange. Over the past three decades, Turkcell has remained committed to its core value of placing technology at the forefront of its business. This focus on innovation, combined with investment in employee expertise, has allowed the company to maintain a leadership role in the Turkish telecommunications market.
Despite macroeconomic challenges, such as record inflation in the second quarter of 2024, Turkcell’s diverse business model and disciplined management helped deliver strong financial performance. The company reported TRY35 billion in revenue, achieving an EBITDA of TRY15 billion and a 42.6% EBITDA margin. Much of this success is attributed to Turkcell Turkiye’s strategic pricing and upsell campaigns, which sustained real ARPU growth.
On the mobile front, Turkcell continued to focus on value-generating postpaid customers, adding 477,000 new subscribers in the second quarter and expanding its postpaid base by 1.8 million year-on-year. Despite a loss of 232,000 prepaid subscribers due to competition, Turkcell’s retention strategies, including the 30th-year Double Up campaign, helped maintain a historically low churn rate of 1.5%.
Turkcell Segment Contributions and Financial Performance
In the second quarter of 2024, the Turkcell Turkiye (NYSE: TKC) and Techfin segments played a pivotal role in driving the group’s top line growth. Turkcell Turkiye’s revenue increased by 1.5% year-over-year, mainly due to an expanding subscriber base, a growing postpaid share in the mobile segment, and real ARPU growth. However, this segment faced pressure from a decline in large digital business services projects, including hardware sales.
The Techfin segment also made significant contributions, adding TRY333 million to the group’s revenue. Paycell and Financell, key performers within this segment, grew by 34% and 16%, respectively. However, the company faced challenges in the consumer electronics space, with lower demand impacting overall performance in other segments.
Turkcell’s EBITDA rose by 0.3%, reaching TRY14.9 billion, with an EBITDA margin of 42.6%. A reduction in equipment sales costs helped offset rising general and administrative (G&A) expenses, as well as sales and marketing (S&M) costs. Stabilized electricity prices, lower demand for equipment, and a decline in mobile termination rates (MTR) also positively influenced the margin.
Despite wage increases implemented to counter inflationary pressures, TKC stock expects further support for profitability through the ongoing MTR decline in the remainder of 2024.
Revenue and ARPU Growth Outlook for the Second Half of 2024
Regarding revenue growth prospects for the remainder of 2024, TKC emphasized several factors influencing its performance. Despite achieving 5% revenue and ARPU growth in the first half of the year, the company anticipates potential challenges due to inflation trends and a lack of significant one-off projects seen in 2023. The government’s upward revision of year-end inflation rates in the 2024 midterm program is also expected to impact revenue growth in the second half.
Real ARPU growth is performing well, driven by inflation-based pricing adjustments, particularly in the mobile and fixed segments. While no price increases occurred in Q2, Turkcell implemented price hikes in July (mobile) and August (fixed), with their impact expected to be reflected in the latter half of 2024.
Corporate revenues have declined, partly due to a slowdown in large government projects, which positively affected EBITDA. Cost management, including favorable mobile termination rate (MTR) pricing and stable electricity costs, has contributed to EBITDA growth, which increased by 10% in the first half. TKC stock remains cautious but optimistic about maintaining strong EBITDA performance through 2024, with more clarity expected after Q3 results.
