European Telecoms Beat Revenue Forecasts But Half Miss on Profit, Morgan Stanley Reports

The European telecommunications sector is presenting a mixed earnings picture, with a majority of companies beating revenue forecasts but half falling short on profit expectations, according to a recent report from Morgan Stanley. The analysis, covering 60% of the region's telecom firms that have reported so far, highlights a divergence between top-line performance and underlying profitability.

Revenue Strength Masks Profit Weakness

Analysts at the investment bank noted that while 56% of companies surpassed revenue estimates, a significant 50% missed their earnings before interest, taxes, depreciation, and amortization (EBITDA) targets. Only Telia and KPN managed to beat EBITDA expectations.

This pressure on profitability is reflected in a marked deceleration in earnings growth. The sector's overall EBITDA growth slowed to 1.3% in the second quarter, a sharp decline from the 3.6% growth rate recorded in the first quarter. Morgan Stanley pointed to Nordic operators like Tele2 and Telenor, whose EBITDA growth is normalizing after a strong 2025 driven by cost-cutting initiatives.

Company Performance and Guidance

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The report detailed varied results and outlooks among individual carriers:

• Vodafone raised its guidance for both EBITDAaL and free cash flow, signaling confidence that it will deliver at the upper end of its updated ranges.
• In contrast, Elisa, Telenor, and KPN all reduced their guidance for certain metrics, such as service revenues or cash flow.
• Nordic operators Elisa and Telenor, along with Liberty Global, were the three companies that missed revenue estimates, citing weak mobile service revenues and competitive market conditions.
• Deutsche Telekom is expected to see improved trends in Germany after implementing a €3 per month broadband price increase in April.

Market Context

Despite the mixed earnings, the European telecom sector has gained 10% year-to-date, though it has underperformed the broader European market by one percentage point, according to Morgan Stanley. The sector has shown weakness since June, partly due to satellite-related concerns impacting companies on both sides of the Atlantic. The report also noted that uncertainty surrounding tower assets continues to weigh on some stocks, including Deutsche Telekom, whose shares remain negative for the year.