I am cautiously bullish on United Internet’s Q3 2025 earnings. My estimates (Valuation Model- Google Sheets) are based on recent performance trends, the fact that the industry is immune to macro pressures, strength at IONOS, positive network tests, end of customer migration and stable revenue from other business divisions. Here is a description of my bullish and bearish factors:
Bullish aerguments
- Telecommunication industry is immune to macro pressure: The telecommunication industry is largely immune to macro pressure since people cannot do without calls or mobile data. Similarly, United Internet’s business is largely non-cyclical. Therefore, the slowdown in Germany’s economy is unlikely to have much impact on United Internet’s operating performance.
- Strength at IONOS: I expect the almost revenue flat growth at 1&1 to be compensated by revenue growth at IONOS (Valuation Model- Google Sheet).
- 1&1 Versatel and Consumer Applications are stable: 1&1 Versatel and Consumer Applications (GMX and WEB.DE) are showing stable revenue and EBITDA growth trends. United Internet continues to make investments in Consumer Applications that should lead to margin expansion in the near-term (Valuation Model-Google Sheets).
- New Telefonica strategy and rising industry consolidation: Reports (forum post) indicating that Telefonica plans to improve its relationship with 1&1 is positive for the Group. For instance, even if there won’t be any acquisitions, it raises the chance that Telefonica will be more willing to avail low-band spectrum to 1&1 at favorable conditions. Personally, I see the possibility of Telefonica acquiring 1&1 as low given that it’s Dommermuth’s legacy and the fact that financial conditions are unlikely to be favorable to Telefonica given continued earnings pressure from the loss of 1&1. I think the most likely scenario is Telefonica taking stake in 1&1 Versatel. My theory is based on Telefonica’s “Transform and Grow” strategy (Notion) where the CEO gave emphasis to growing their broadband business. Rising industry consolidation in Germany also gives United Internet the opportunity to dispose of some of its business units, leading to a more leaner structure and improved earnings multiples.
- Positive network tests: Recent tests on 1&1 network by IMTEST and Chip found that 1&1 network is much better than many people think. While the network trailed that of incumbents, tests results were largely good (forum posts).
- End of customer migration: With customer migration largely complete (forum post), customer churn is likely to be lower in Q3 compared to the first half. Management expects a little bit of growth in Q3 and Q4 as a result of the conclusion in customer migration.
- Management is confident to meet 25% coverage: In a recent letter to BNetZa, 1&1 management reiterated that they are confident they will meet 25% coverage and said network expansion is progressing well (forum post). While 1&1 only added 200 new active sites in Q2 2025, taking the total number of actives to 1,200, it has a huge pipeline of antenna sites (5,800) (Notion). Based on these developments, I now believe 1&1 might actually meet the target. I also like that BNetzA was able to extend 1&1’s dateline to meet the minimum coverage in each federal district as it signals openness to do it further. 1&1 needs 6,000-6,500 active antenna sites by the end of 2025 to achieve 25% coverage and meet BNetZa obligations.
Bearish arguments
- Pricing pressure at 1&1: I expect continued pricing pressure at 1&1 due to aggressive competition in the industry. Both O2 (Notion) and Freenet (Notion) flagged aggressive competition in Q3 2025. For instance, O2 reported that average revenue per user (ARPU) was down 1.5% y/y in Q3 (Q2 2025:-1.1%) (Notion).
- Possibility that roaming costs rose further in Q3: There is a risk that roaming costs may have risen further in Q3 due to network expansion that is still slow. Also, according to Chip, roaming in Vodafone network is “normal” in most cases i.e. around 88% of internet browsing tests and 90% of phone calls were made in roaming mode. Similarly, Dommermuth warned in Q2 (Notion-Q2 2025 earnings) that if the network grows more slowly than expected, they will have to buy more capacity from Vodafone.
- Uncertainty regarding low-band spectrum: Recent reports (forum post) indicate that 1&1 is concerned about the ongoing negotiations with the incumbents regarding the shared use of low-band spectrum, saying negotiations are progressing “very slowly”. If there is a delay in getting the low-band spectrum, 1&1 will incur more costs since it will have to rely more on national roaming.
Here are analysts estimates and management guidance for Q3 2025 and FY2025 (Notion):
Recommendation
Given the low-band spectrum uncertainty and the lack of confirmed data on current network-buildout progress, I assign United Internet shares a “Hold” rating.