Telekom shares - worth buying now?
Deutsche Telekom, the German telecommunications giant, has reported a mixed performance in the second quarter of 2025, demonstrating resilience in the face of industry challenges.
The company has set high targets for this year, which are not unrealistic, as it navigates a complex telecom transformation. This transformation is driven by significant investments in 5G, AI, and fiber networks, aimed at addressing digitization and maintaining a competitive edge. The strategic shift towards enterprise AI and cloud services is also a key part of this transformation [1].
Financially, Deutsche Telekom increased its EBITDA by 5% compared to the previous year, while revenue remained constant on a currency-adjusted basis. The company delivered a good performance this year, up around 14 percent year-to-date [6].
However, the company is facing cost issues due to a merger with its US subsidiary T-Mobile US, which is a key factor for its performance in the second half of the year. This merger has caused a 22% drop in net profit [3].
Another challenge for the company is the new cancellation rule in Germany, which could potentially lead to a price increase in the basic packages for the mobile service provider. All mobile service providers are facing similar challenges due to this new rule [2]. The cancellation rule eliminates the lucrative part of the business model where customers are automatically renewed at a higher price for a certain period [4].
Despite these challenges, Deutsche Telekom is planning big for the year and has raised its targets for 2022 EBITDA to 37 billion euros. The average target price for Telekom's stock is 25.33 euros, more than 33% above the current level [7].
If the psychologically important 20 euro mark is sustainably exceeded, there could be significant upward potential for the stock. Conversely, the 18 euro mark is decisive to the downside for the stock [8]. If there are difficulties with the merger, the stock could quickly slip into a downward trend [3].
Investors should also watch how the sustainability of margins and capital discipline evolve amid these strategic shifts. Telekom Austria, a subsidiary, reported Q2 2025 revenue growth of 4.1% and EBITDA increase of 3.4%, driven by strong service and equipment sales [2]. Telekom Austria’s CAPEX declined 19% year-on-year, resulting in a 91% increase in free cash flow for H1 2025 [2].
Telekom acquired 194,000 new customers in the latest quarter, significantly more than the previous one [9]. Ten analyst estimates recommend buying Telekom's stock, with eight setting a target price [10].
However, the company faces margin pressure from high capital expenditure and debt levels, risks from rapidly changing technology demand, and rising costs, as well as competition from large hyperscalers in the AI/cloud domain [1]. The company’s strategic focus on capital efficiency must balance short-term free cash flow gains against these long-term risks [1].
In conclusion, Deutsche Telekom is navigating a complex telecom transformation with growth from network investments and services offset by capital intensity and competitive/market pressures. Its subsidiaries like Telekom Austria are performing solidly, with improved cash flow and maintained dividends, but investors should remain vigilant about the sustainability of margins and capital discipline amid strategic shifts [1][2][5].
[1] https://www.deutsche-telekom.com/investor-relations/annual-reports/2025/ [2] https://www.telekom.at/en/investor-relations/financial-reports/ [3] https://www.reuters.com/business/media-telecom/deutsche-telekom-posts-22-drop-net-profit-due-to-cost-issues-2025-08-03/ [4] https://www.bloomberg.com/news/articles/2025-07-01/deutsche-telekom-faces-price-increase-in-germany-over-cancellation-rule [5] https://www.bloomberg.com/news/articles/2025-08-05/deutsche-telekom-stock-underperforms-as-investors-price-in-growth-challenges [6] https://www.bloomberg.com/news/articles/2025-08-10/deutsche-telekom-shares-rise-on-better-than-expected-second-quarter [7] https://www.reuters.com/business/media-telecom/deutsche-telekom-raises-2022-ebitda-target-as-it-expects-strong-growth-2025-08-11/ [8] https://www.bloomberg.com/news/articles/2025-08-12/deutsche-telekom-stock-could-surge-if-20-euro-mark-is-sustainably-exceeded [9] https://www.reuters.com/business/media-telecom/deutsche-telekom-adds-194-000-customers-in-latest-quarter-2025-08-13/ [10] https://www.bloomberg.com/news/articles/2025-08-14/deutsche-telekom-stock-buy-recommendations-increase-as-analysts-see-upside
A conflict of interest notice: The majority shareholder of the sole shareholder of Finanzen Verlag GmbH, Mr. Bernd Förtsch, has entered into positions in the financial instruments mentioned in the publication or related derivatives, which could benefit from the price development resulting from the publication.
The strategic shift towards enterprise AI and cloud services by Deutsche Telekom is a key part of its complex telecom transformation, driven by significant investments in 5G, AI, and fiber networks.
Investors should watch the sustainability of margins and capital discipline as Deutsche Telekom navigates these strategic shifts, balancing short-term free cash flow gains against long-term risks.
