Digital Transformation And Fiber Build Will Improve Efficiency Despite Challenges

Key Takeaways

• Accelerated digital transformation, AI adoption, and disciplined expansion in high-growth markets position Deutsche Telekom for sustained revenue and margin growth.
  
• Investments in fiber and 5G, alongside supportive regulation and strong operational execution, are expected to enhance market share and long-term earnings stability.
  
• Reliance on T-Mobile US and legacy infrastructure, combined with saturated European markets and costly fiber investments, exposes Deutsche Telekom to growth, margin, and technological disruption risks.

Catalysts

Provides integrated telecommunication services worldwide.

• Rapid AI and digital transformation initiatives-including AI-powered network management, customer support automation, and industrial AI collaborations (notably with NVIDIA)-are expected to materially lower operating costs and increase efficiency, supporting margin expansion and higher free cash flow in the medium to long term.
  
• Growing integration of connected devices and accelerating demand for high-speed, reliable connectivity (driven by IoT, smart homes/cities, and rising data consumption) position Deutsche Telekom to benefit from sustained data revenue growth and increased ARPU, with a direct positive impact on top-line revenues.
  
• Strong execution in the U.S. market, including record postpaid net additions, increased ARPU, expansion into fiber (via Lumos and Metronet), and fixed wireless services, enhances Deutsche Telekom's exposure to structurally attractive, high-growth segments and supports recurring cash flow and consolidated earnings growth.
  
• Significant ongoing investment in fiber and 5G networks across Europe, paired with supportive regulatory and fiscal policy (e.g., digitalization initiatives, infrastructure funds), is expected to increase market share, boost network quality, and ultimately translate into improved ARPU and margin uplift over time.
  
• Established track record of operational efficiency and digitalization, coupled with disciplined M&A creating new revenue streams (e.g., sale of non-core assets, expansion in the U.S.), is expected to deliver long-term leverage on costs and support sustainable net earnings growth.

Deutsche Telekom Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Deutsche Telekom's revenue will grow by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 10.5% today to 9.2% in 3 years time.
• Analysts expect earnings to reach €11.8 billion (and earnings per share of €2.5) by about August 2028, down from €12.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €8.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, up from 11.7x today. This future PE is lower than the current PE for the GB Telecom industry at 20.8x.
• Analysts expect the number of shares outstanding to decline by 1.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.76%, as per the Simply Wall St company report.

Deutsche Telekom Future Earnings Per Share Growth

Risks

• Persistent saturation and intense price competition in the German broadband market, combined with aggressive promotional pricing from competitors like Vodafone and increased focus by alt-nets on converting homes connected, are constraining volume and driving customer losses, which creates long-term revenue headwinds and pressures EBITDA margin expansion.
  
• Ongoing heavy fiber investment requirements in Germany amid a slow and expensive build-out, without near-term volume growth or rapid monetization, risk an ROI shortfall and could weigh on net earnings and free cash flow, especially as ARPA growth has to offset declining customer numbers.
  
• Exposure to mature, slow-growth, and intensely competitive European markets continues to limit top-line growth opportunities and exposes the company to sustained price pressure, potentially restricting EBITDA and longer-term margin expansion.
  
• Deutsche Telekom's strong reliance on T-Mobile US for consolidated revenue and earnings growth exposes it to concentration risk; any regulatory, competitive, or operational disruption in the US market could materially affect group financials.
  
• Accelerating technological disruption (e.g., rapid advances in low-earth orbit satellite broadband, potential market shifts towards 6G, and persistent migration from legacy services to OTT platforms) may threaten the relevance of investments in traditional infrastructure, increasing the risk of stranded assets and eroding future revenues.

Valuation

• The analysts have a consensus price target of €37.582 for Deutsche Telekom based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €43.5, and the most bearish reporting a price target of just €31.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €128.8 billion, earnings will come to €11.8 billion, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 4.8%.
  
• Given the current share price of €30.37, the analyst price target of €37.58 is 19.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.