How come the Telstra share price crashed 16% in FY 2024?

Telstra shares massively underperformed the ASX 200 in FY 2024. But why?

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The Telstra Group Ltd (ASX: TLS) share price just closed out a financial year to forget.

Shares in the S&P/ASX 200 Index (ASX: XJO) telco ended FY 2023 trading for $4.30 apiece. On Friday, the final trading day of FY 2024, shares closed at $3.62.

That saw the Telstra share price down a painful 15.8% over the 12 months.

For some context, the ASX 200 gained 7.8% over this same period.

Now, shareholders will have gotten some reprieve from the two fully franked dividends the company paid out over the year. Telstra shares currently trade on a trailing yield of 4.85%.

Here's what put the ASX 200 telco under pressure in FY 2024.

Why did the Telstra share price go backwards in FY 2024?

Among the headwinds hitting the Telstra share price over the financial year just past is ongoing inflationary pressure.

In February, Telstra CEO Vicki Brady indicated that sticky inflation was making the company's cost reduction plans more difficult.

"While our cost reduction ambition is being challenged by high inflation, we still expect to achieve the large majority of this by FY25," she said.

Telstra since revealed its plans to cut as many as 2,800 employees as part of that cost-cutting initiative. And in a move that's divided analysts, the ASX 200 telco has said it will no longer increase its monthly mobile charges in line with inflation, as it has been doing.

Investors also appeared displeased when Telstra announced on 17 August that it would not sell its holdings in InfraCo Fixed.

"After thoroughly examining alternatives, we have concluded that the greatest value to be created for shareholders is by maintaining the current ownership structure of InfraCo Fixed, for at least the medium term," Brady said.

Some analysts had expected the asset sale to unlock additional value for the company. The Telstra share price closed down 2.8% on the day.

Investors also didn't react positively to Telstra's half-year results, released on 15 February. Despite the company reporting a 1.2% year on year increase in income to $11.7 billion, and an 11.5% boost in net profit after tax, which came in at $1.0 billion for the six months to 31 December, the Telstra share price closed down 2.3% on the day.

The selling was spurred by the underperformance of the telco's NAS (network applications and services) business, which negatively impacted its guidance.

Brady said on the day:

Given the performance in our NAS business, we are tightening our FY24 underlying EBITDA guidance range to $8.2 to $8.3 billion. FY24 guidance across other measures is reaffirmed.

Prior guidance was for earnings before interest, taxes, depreciation, and amortisation (EBITDA) to be between $8.2 billion and $8.4 billion.

As for the new financial year, Telstra finished trading on the second day of FY25 yesterday at $3.61.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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