Legacy Revenue Declines And Rising Capex Will Undermine Value

Key Takeaways

• Declining traditional service revenues and rising infrastructure costs threaten long-term profitability amid ongoing digital disruption and inflationary pressures.
  
• Intensifying competition, regulatory risks, and rapid technological shifts challenge market share, pricing power, and could render recent capital investments obsolete.
  
• Globe's digital innovation, cost efficiency, and strategic infrastructure investments drive sustained earnings growth, diversified revenue streams, and reinforce its market leadership in the Philippines.

Catalysts

Engages in the provision of telecommunications services to individual consumers, corporate, and small and medium enterprise clients in the Philippines.

• The continued acceleration of digitalization and the widespread adoption of over-the-top (OTT) services are expected to further cannibalize Globe Telecom's legacy voice and SMS revenues, as evidenced by a two percent year-on-year decline in total mobile revenues and persistent softness in consumer telecom spending, which threatens long-term revenue growth and ARPU recovery.
  
• With global inflationary pressures and external financial shocks likely to persist, the company's reliance on capital-intensive infrastructure upgrades such as 5G deployment, fiber rollouts, and data center expansion will continue to increase operating costs and raise the cost of capital at a time when core service revenues are declining, which will strain free cash flow and compress net margins over the long run.
  
• Intensifying competition from both digital-first entrants like DITO Telecommunity and the proliferation of alternative fintech and online lending platforms are expected to erode Globe Telecom's market share in both telecom and GCash, reducing pricing power and making it increasingly difficult to maintain premium segment leadership or diversify income streams, resulting in lower earnings growth and margin resilience.
  
• Heightened emphasis on data privacy, cybersecurity, and looming regulatory interventions-including stricter quality-of-service mandates, spectrum allocation shifts, and possible pricing controls-will require substantial ongoing investment and introduce material compliance risk, which may significantly increase non-discretionary capex and expose Globe to heavier penalties or regulatory costs, negatively impacting both operating profit and net income.
  
• Rapid technological disruptions, such as the adoption of 6G, expansion of satellite internet, or accelerated fiberization led by competitors, risk making existing network and tower infrastructure obsolete, potentially turning recent capital investments into stranded assets, accelerating depreciation, and magnifying asset write-downs, which will hit future profitability and shareholder returns.

Globe Telecom Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Globe Telecom compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Globe Telecom's revenue will decrease by 0.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 11.5% today to 18.9% in 3 years time.
• The bearish analysts expect earnings to reach ₱33.3 billion (and earnings per share of ₱197.78) by about August 2028, up from ₱20.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, down from 12.0x today. This future PE is greater than the current PE for the PH Wireless Telecom industry at 10.5x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.29%, as per the Simply Wall St company report.

Globe Telecom Future Earnings Per Share Growth

Risks

• Accelerating digitalization and rapidly growing data consumption in the Philippines are driving sustained demand for connectivity services, as evidenced by a 7% quarter-on-quarter improvement in mobile data ARPU and substantial growth in 5G adoption, which positions Globe to boost its revenues and maintain market leadership.
  
• Globe's cost optimization and capital efficiency programs have led to robust EBITDA margins above 50%, a 3% sequential EBITDA increase, and a 33% reduction in capital expenditure, all of which support improved profitability and free cash flow that could fuel future earnings and dividend sustainability.
  
• The transformation of GCash and Mynt into a leading digital financial ecosystem, contributing 26% of Globe's pretax income and showing an impressive 78% year-on-year rise in equity earnings, creates diversified, high-growth revenue streams beyond Globe's core telecom operations, supporting long-term net income and EBITDA growth.
  
• Globe's strategic investments in 5G infrastructure, fiber rollouts, and data center expansion (including projects like STT GDC Philippines) place the company at the forefront of next-generation digital infrastructure, allowing it to capture higher-value enterprise, data, and ICT revenues, with direct benefits to top-line growth and earnings resilience.
  
• Demographic trends such as population growth, continued urbanization, and increasing digital habituation among Filipinos are driving an expanding subscriber base and deeper monetization per user, setting the stage for sustainable ARPU growth and long-term improvement in Globe's service revenues.

Valuation

• The assumed bearish price target for Globe Telecom is ₱1744.57, which represents two standard deviations below the consensus price target of ₱2374.0. This valuation is based on what can be assumed as the expectations of Globe Telecom's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₱2750.0, and the most bearish reporting a price target of just ₱1650.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₱176.2 billion, earnings will come to ₱33.3 billion, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of ₱1720.0, the bearish analyst price target of ₱1744.57 is 1.4% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.