Saudi Telecom’s Q1 Surge: A Foundation for Sustainable Growth in a Digital Age?

Saudi Telecom Company (stc) has delivered a mixed but ultimately encouraging set of results for the first quarter of 2025, showcasing the resilience of its core operations even as it navigates the volatility of one-time gains and macroeconomic headwinds. With net profit rising 11.05% year-over-year to SAR 3.649 billion and revenue edging up 1.6% to SAR 19.21 billion, the telecom giant is positioning itself as a linchpin of Saudi Arabia’s digital transformation. But beneath the surface, questions linger about whether its growth can sustain momentum without reliance on exceptional items.

Ask Aime: "Understanding STC's Q1 2025 Results and Growth Prospects"

The sequential decline in net profit—plunging 72.9% from SAR 13.45 billion in Q4 2024—provides a critical caveat. Stripping out the SAR 12.885 billion gain from the prior quarter’s sale of stakes in Telecommunications Towers Company (TAWAL), stc’s underlying performance remained robust. Revenue dipped slightly compared to Q4, but gross profit held steady, and operating expenses fell by SAR 931 million due to cost discipline. This underscores a company capable of balancing expansion with fiscal prudence, even as it invests in high-stakes initiatives.

Ask Aime: Can Saudi Telecom Company (stc) maintain its growth momentum in the face of declining net profits?

Revenue and Profit Dynamics: A Closer Look

stc’s revenue growth, while modest, was driven by double-digit increases in business unit revenues (9.7%) and commercial unit revenues (1.7%). This bifurcation highlights a focus on enterprise clients, a segment critical to diversifying revenue streams. Gross profit expanded by SAR 435 million year-over-year, benefiting from both higher revenues and a SAR 133 million reduction in the cost of services. However, rising operating expenses—particularly depreciation/amortization (up SAR 235 million) and marketing costs (up SAR 112 million)—suggest the company is scaling its infrastructure and brand investments.

Ask Aime: What's behind Saudi Telecom's Q1 2025 net profit rise?

The sequential drop in net profit also reflects a strategic recalibration. Without the TAWAL windfall, stc’s Q1 results hinged on organic performance, which remains solid. EBITDA rose 5.25% year-over-year to SAR 6.12 billion, a metric that often signals cash flow health. Meanwhile, shareholders’ equity swelled to SAR 91.06 billion, up from SAR 80.44 billion a year ago, bolstered by retained earnings and disciplined capital management.

Strategic Bets: Betting on the Future

stc’s first-quarter report wasn’t just about numbers—it was a roadmap for its role in Saudi Vision 2030. Key highlights include:
- eSIM Leadership: Becoming the first telecom globally to secure GSMA SAS-UP certification for localized eSIM software with Thales. This move positions stc as a pioneer in Saudi’s tech localization agenda, reducing reliance on foreign technology.
- Infrastructure Ambitions: Partnering with Ooredoo to build a ground fiber network between Saudi and Oman, enhancing regional connectivity with dual backup routes and data centers. Such projects align with stc’s vision of becoming a “digital backbone” for the Gulf.
- Cloud and AI Alliances: Tapping AWS to bolster cloud and AI capabilities, reflecting a broader push into enterprise tech services—a high-margin arena with secular growth potential.

These initiatives aren’t just about growth; they’re about redefining stc’s role. The Ramadan network upgrades in the Two Holy Mosques, boosting connection speeds by 120%, demonstrate the company’s ability to execute under pressure—a critical test for any telecom in a region reliant on pilgrimage infrastructure.

Risks and Considerations

While stc’s fundamentals are strong, challenges loom. The sequential profit drop and reliance on one-time gains underscore the need for consistent organic growth. A SAR 364 million annual rise in operating expenses, particularly in depreciation, hints at heavy capital expenditures that could strain margins if revenue growth slows. Additionally, geopolitical risks—such as global tech trade policies or regional economic shifts—could impact its partnerships and infrastructure projects.

Investors should also monitor regulatory trends. Saudi’s push for tech localization is a double-edged sword: it creates opportunities but demands costly R&D investments. stc’s collaboration with Thales on eSIM, while laudable, may divert resources from other areas.

Conclusion: A Strong Foundation, but Sustained Innovation is Key

stc’s Q1 results paint a company at an inflection point. Its core telecom business is stable, with profit margins and EBITDA signaling operational health, while its strategic bets—eSIM, cloud, and regional infrastructure—point to long-term value creation. The 11% net profit growth and SAR 0.55 dividend per share reflect a balance between reinvestment and shareholder returns.

Yet, the absence of the TAWAL gain in Q1 highlights the need for organic momentum. If stc can maintain its current revenue trajectory while managing costs, it could sustain growth even in a tougher macro environment. The company’s 5.25% EBITDA expansion and SAR 61 million profit from associates also suggest a diversified earnings base.

For investors, stc represents a play on Saudi’s digital future—but one that requires patience. The SAR 91 billion in equity and AWS/Ooredoo partnerships are confidence-building steps. If stc continues to execute on its strategic roadmap, it could solidify its position as a regional tech leader. The next quarter will be pivotal: a repeat of Q1’s organic growth, minus the noise, will determine whether this surge is a blip or the start of a new era.

As stc CEO Eng. Olayan Alwetaid noted, the company’s mission is to “drive digital transformation” in line with Vision 2030. With its Q1 results, stc has laid the groundwork—but the real test is in the execution.