NTT's Profit Plummets 22% in FY2024: What Investors Need to Know

Japanese telecommunications giant Nippon Telegraph and Telephone (NTT) reported a 22% decline in net profit for fiscal 2024, marking a significant reversal from the prior year’s performance. While operating revenue hit a record ¥13,374.6 billion, profit margins were squeezed by a combination of currency headwinds, rising operational costs, and strategic reinvestment. Below, we dissect the factors behind the drop and assess the implications for investors.

The Culprits Behind the Profit Slump

1. Foreign Exchange Headwinds
   The yen’s appreciation against major currencies, particularly the U.S. dollar, shaved ¥130 billion from operating revenue in FY2024. This contrasts sharply with FY2023, when favorable forex rates added ¥200 billion to the bottom line. NTT’s global operations, including its Global Solutions segment, were hit hardest, as weaker overseas currencies reduced the value of overseas earnings when converted back to yen.

1. Cost Pressures Mount
2. Disaster Recovery & Security: Rising costs to bolster network resilience and cybersecurity infrastructure added pressure.
3. Infrastructure Modernization: NTT East and West spent ¥179.5 billion to upgrade aging telecommunications networks, including decommissioning outdated facilities.

4. Customer Retention: NTT DOCOMO’s investments in competitive pricing and network improvements—such as 10-gigabit broadband plans—eroded mobile revenue, contributing to a ¥30.7 billion drop in Q2 operating income.

5. One-Time Gains Fade
   FY2023’s profits were boosted by ¥179.5 billion from asset sales, including non-core real estate and IIJ shares. These one-time gains did not recur in FY2024, amplifying the profit decline.

6. Structural Challenges

7. Declining Landline Revenue: Fixed-line voice and IP communications continue to shrink as consumers shift to mobile and internet-based services.
8. Energy Division Struggles: NTT Anode Energy faced a profit contraction due to soaring electricity procurement costs.

Strategic Shifts and Long-Term Opportunities

Despite the near-term pain, NTT is positioning itself for future growth through high-margin sectors and global expansion:
- Data Centers & Cloud Services: NTT’s data center business, part of its “others” segment, saw robust EBITDA growth, driven by demand for hybrid cloud solutions.
- Global Ventures: Investments in Precision Medicine (via NTT Precision Medicine Corp.) and automated driving partnerships with Toyota aim to diversify revenue streams.
- AI & Customer Experience: New roles like Chief AI Officers (CAIOs) and Chief Customer Experience Officers (CCXOs) signal a focus on innovation, though upfront costs are eating into profits.

Mitigation Measures and Investor Confidence

• Cost Discipline: NTT plans aggressive restructuring, including asset sales through its Urban Development division, to improve efficiency.
• Dividend Stability: Despite the profit decline, NTT maintained a ¥5.2 annual dividend per share, extending its 14-year streak of dividend growth. This signals confidence in its medium-term recovery.

Conclusion: A Transitional Year with Growth Horizons

NTT’s FY2024 results are a tale of short-term pain and long-term promise. While the 22% net profit drop underscores challenges from forex headwinds, infrastructure costs, and fading one-time gains, the company’s focus on high-growth areas like data centers and precision medicine aligns with its 2027 medium-term goal of a 20% EBITDA increase from FY2022 levels.

Investors should note that operating revenue hit a record high, suggesting strong demand for NTT’s core services. The strategic investments—though costly now—position the company to capitalize on trends like 5G, AI, and global digitalization. While FY2025 may see further turbulence, the foundation for recovery is being laid. For those with a multi-year horizon, NTT’s dividend stability and exposure to Japan’s digital backbone make it a compelling play, even as profit pressures linger in the near term.

Stay tuned for FY2025 updates, where NTT aims to demonstrate the fruits of its restructuring and innovation efforts.