1&1’s Q1 2025 EBITDA significantly beats estimates on lower cost of sales, revenue slightly misses estimates
- 1&1 Q1 2025 total revenue fell 0.6% y/y to €1,019 million (analysts estimate: €1,024 million); service revenue was flat y/y at €822 million (analysts estimate: €824 million), while hardware revenue fell 3% y/y to €196 million.
- EBITDA fell 15% y/y to €156 million (analysts estimate: €140 million), EBITDA in the access segment fell 0.8% y/y to €222 million (analysts estimate: €212 million), while EBITDA in the 1&1 Mobile Network Segment rose 58% y/y to -€67 million (analysts estimate: -€72 million).
- The number of customer contracts increased by 50,000 y/y to 16.35 million (analysts estimate:12.36 million), mobile contracts increased by 130,000 to 12.42 million, in line with analysts estimate, while broadband contracts fell by 80,000 to 3.93 million (analysts estimate: 3.94 million).
- Cash capex during the quarter rose to €27.9 million from €10.1 million in Q1 2024 (full-year 2025 management guidance: €450 million).
- Management reiterated its 2025 outlook: EBITDA expected to decline 3.4% to €571 million, based on Access segment EBITDA of around €836 million (2024: €856.1 million) and 1&1 Mobile Network segment EBITDA of around -€265 million (2024: -€265.3 million); service revenue is expected to remain at the prior-year level (€3,303.1 million).
Assessment of the earnings
Revenue came in above my midpoint estimate of €1,017 million, indicating that the core business remains stable.
EBITDA was €16 million higher than the consensus estimate and €27 million above my midpoint estimate, largely driven by lower-than-expected cost of sales. Cost of sales rose 4.5% y/y to €756 million, which was below my midpoint estimate of €784 million (+8%). During the earnings call, management stated that cost of sales was mainly driven by 1&1 startup expenses, but they did not clarify whether the increase was due to migration, personnel, or other cost components.
The earnings call provided few new insights. In particular, the CFO withheld details that are typically disclosed and, at times, took a long time to respond to questions—potentially indicating limited familiarity with certain aspects of the business.
I found the CFO’s comments on antenna site deployment contradictory. He stated that 1&1 still expects to reach 25% population coverage by the end of 2025, while also guiding toward just 2,000 active antenna sites by that time. Previously, management has said that 6,000–6,500 active antenna sites would be needed to reach 25% coverage. Considering 1&1 reported 5,000 sites under development last quarter, I had expected an increase in active sites this quarter—but they reiterated the 1,000 figure. This suggests further execution delays and raises the risk of missing the 2025 coverage requirement.
When 1&1 failed to meet the 2022 target of 1,000 active sites, reports indicated that BNetzA could impose a fine of €50,000 per missing site. BNetzA later suspended enforcement after the Cologne Administrative Court ruled the 2019 frequency auction was unlawful, due to improper political influence from the Transport Ministry—particularly on coverage obligations. The outcome of BNetzA’s appeal remains pending. If the court ruling is upheld, the 2019 auction could be declared void and existing coverage obligations would likely be revised. However, if BNetzA wins the appeal and 1&1 still fails to meet its 2025 rollout target, it could face penalties of up to €200 million (i.e., 4,000 missing sites × €50,000). A delay in achieving the required coverage also postpones key economic benefits, such as reduced national roaming costs.
In the earnings call, the CFO also acknowledged uncertainty around post-migration network performance. He said that while 1&1 has performance data when users are stationary at home, they do not yet know how the network will perform once customers begin using it in motion—another important risk to monitor.
D’Avis also did not comment on the ongoing negotiations regarding low-band spectrum — not even on the 2.6 GHz band, where discussions were previously viewed as relatively low-risk.
Overall, while the core business appears stable, execution risks related to antenna site buildout have resurfaced, and there is now uncertainty around network quality post-migration and the outcome of low-band spectrum negotiations. Given these risks, combined with the recent uptick in the share price, I continue to recommend taking some profits.