EQS-News: 1&1: 2025 Financial Results and For...

1&1 AG (ISIN DE 0005545503) reported its 2025 financial results, revealing a mixed performance characterized by a slight increase in service revenue but a notable decline in EBITDA. The company recorded a total of 16.32 million customer contracts, reflecting a net addition of 40,000 mobile contracts, which was offset by a loss of 110,000 broadband connections. Service revenue for the year grew by 1.0% to €3,336.6 million, while EBITDA fell by 9.0% to €537.5 million, primarily due to increased wholesale costs associated with national roaming agreements. This decline in EBITDA is particularly concerning as it indicates rising operational pressures that could impact the company's profitability moving forward.

The results also highlighted the challenges faced by 1&1 AG in transitioning its customer base to its new mobile network, which has been completed but resulted in higher churn rates. The company’s decision to switch from Telefónica to Vodafone for national roaming has had a negative impact on EBITDA, although it was EBIT neutral. The new agreement with Vodafone has led to a full recognition of costs in EBITDA, contrasting with the previous arrangement that allowed for some capitalisation of costs. Additionally, the unexpected rise in wholesale service costs has compounded the pressure on margins, suggesting that the operational environment remains challenging.

Financially, 1&1 AG's EBITDA decline is concerning, particularly as it comes alongside a significant drop in EBIT, which decreased by 32.7% to €208.2 million. The earnings per share (EPS) also took a hit, falling by 22.3% to €0.94. Free cash flow, however, showed a marked improvement, rising to €195.1 million from €20.8 million in the previous year, largely due to the cessation of advance payments to Deutsche Telekom for VDSL/FTTH quotas. The company's cash capex for 2025 was reported at €409.2 million, with projections for 2026 indicating a cash capex of approximately €500-550 million. This suggests that while the company is generating positive cash flow, it is also committing substantial resources to maintain and expand its network infrastructure.

In terms of valuation, 1&1 AG's current market capitalisation stands at approximately €1.5 billion. When comparing this with peers in the telecommunications sector, it is essential to consider companies of similar size and operational focus. Direct peers include United Internet AG (XETRA:UTDI), which operates in a similar space but with a larger market cap, and Freenet AG (XETRA:FNTN), which is also focused on mobile and broadband services. Another comparable entity is Telefonica Deutschland Holding AG (XETRA:O2D), which operates within the same market but has a different operational scale. While 1&1 AG's service revenue growth is modest, its EBITDA margins are under pressure, suggesting that it may be trading at a premium relative to its peers given the current operational challenges.

The funding outlook for 1&1 AG appears stable, with sufficient cash flow to support its ongoing capital expenditures. However, the anticipated capex for 2026 raises questions about potential dilution risks if the company seeks additional financing to support its growth initiatives. The unchanged dividend proposal of €0.05 per share indicates a commitment to returning value to shareholders, but it also reflects a cautious approach in light of the current financial performance. Assuming a total of 176.5 million shares entitled to dividends, the total disbursement would amount to €8.8 million, which is manageable within the context of the company's cash flow.

Looking ahead, 1&1 AG forecasts service revenues for 2026 to remain at the previous year's level, with EBITDA expected to rise to approximately €800 million. The company anticipates operating EBITDA growth of around €100 million per year for 2027 and 2028, which could signal a recovery if the operational challenges can be effectively managed. However, the reliance on improving EBITDA growth in the coming years introduces a level of execution risk, particularly if the anticipated improvements do not materialize as planned.

One specific risk highlighted by this announcement is the potential for further increases in wholesale costs associated with national roaming services. As the company continues to expand its network and customer base, any unexpected hikes in these costs could further pressure margins and hinder profitability. Additionally, the ongoing transition to the new mobile network may continue to affect customer retention and acquisition efforts, which could impact future revenue growth.

In conclusion, the announcement from 1&1 AG reflects a moderate shift in the company's operational and financial outlook. While there are positive signs in terms of cash flow and customer growth in mobile contracts, the decline in EBITDA and EBIT raises concerns about the sustainability of profitability in the near term. The company's ability to navigate the challenges posed by rising costs and customer churn will be critical in determining its future performance. This announcement can be classified as moderate in terms of materiality, as it highlights both the operational challenges and the potential for future growth, but does not indicate a transformational change in the company's trajectory at this time.

Key insights

• ●Service revenue grew 1.0% to €3.34 billion.
• ●EBITDA declined by 9.0% to €537.5 million.
• ●Free cash flow improved to €195.1 million.

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