Rain’s huge success

Rain’s runaway success story continues. The operator has turned profitable and continues exceeding earnings targets as South Africans flock to its affordable mobile and fixed broadband products.

On Thursday, African Rainbow Capital (ARC) revealed that it had increased Rain’s valuation to R22.3 billion — a R4.35 billion increase in six months.

ARC attributed the higher valuation to the business progressing beyond the period of significant net cash outflow and the recent acquisition of additional spectrum.

ARC co-CEO Johan van Zyl revealed that Rain has turned profitable on the back of earnings before interest, taxes, depreciation, and amortisation (EBITDA) increasing to R2.3 billion.

He added that their free cash flow is “nicely positive and growing” and that Rain is on track to achieve EBITDA of over R2.5 billion for the year ending February 2024.

“It is phenomenal considering that the business is only five years old,” he told investors during ARC’s results presentation.

Van Zyl explained that Rain is run as a technology start-up, so it cannot be compared to large telecommunications companies with expensive legacy operations.

Commenting on its operational performance, he said Rain adds 30,000 to 40,000 new clients monthly with its new RainONE product.

RainONE offers subscribers uncapped data, free monthly calls and data for two phones, and a fixed 5G connection for R559 per month.

“Around 60% of Rain’s client base with a fixed 5G broadband connection uses two mobile SIMs, and another 25% uses one additional mobile SIM,” he said.

This unique product helped to increase Rain’s average revenue per user (ARPU), which is multiple times higher than Vodacom, MTN, Cell C, and Telkom.

The other mobile operators’ ARPU typically hovers between R70 and R100 per month because of their large prepaid client bases.

Part of Rain’s success is its disruptive business model, made possible because it has no legacy services or products to maintain.

Rain rolled out its network using the latest 4G and 5G technologies and currently uses only a tiny part of its capacity.

This allows it to launch products like uncapped mobile and fixed-broadband data without concerns about network bottlenecks.

Another benefit is that it roams on Vodacom in areas where it does not make commercial sense to build its own network.

Another thing that bodes well for Rain’s future is that around 90% of its 5G network investment has been done. Future investments would be relatively small.

This will help bolster earnings as it starts to fill up the network with additional broadband and mobile subscribers.

This article was first published by Daily Investor and is republished with permission.