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1. Company Snapshot

1.a. Company Description

United Internet AG, through its subsidiaries, operates as an Internet service provider.The company operates through Consumer Access, Business Access, Consumer Applications, and Business Applications segments.It offers landline-based broadband and mobile internet products, including home networks, online storage, telephony, and IPTV for private users; and telecommunication products ranging from fiber-optic direct connections to tailored ICT solutions, which include voice, data, and network solutions, as well as infrastructure services to national and international carriers and ISPs. The company also provides ad-financed and fee-based application products for consumer and business customers, including domains, websites, web hosting, servers, cloud solutions, and e-shops; personal information management applications, such as email, to-do lists, appointments, and addresses; and group works, online storage, and office software.


It offers its access products through the yourfone, smartmobile.de, 1&1, and 1&1 versatel brands; and applications through GMX, mail.com, WEB.DE, home.pl, Arsys, STRATO, IONOS, Fasthosts, InterNetX, united-domains, and World4You brand names.In addition, the company offers customers professional services in the fields of active domain management under the Sedo brand; and online advertising services under the United Internet Media brand name.It has operations in Germany, the United States, the United Kingdom, Spain, France, Poland, Italy, Austria, Hungary, Romania, Bulgaria, the Czech Republic, Slovakia, the Netherlands, Switzerland, Canada, and Mexico.


The company was founded in 1988 and is headquartered in Montabaur, Germany.

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1.b. Last Insights on UTDI

United Internet AG's recent performance has been impacted by several negative drivers. The company's lack of major announcements and quiet stock movement have raised questions about underlying sentiment. Key concerns include rising costs, intensifying competition, and uncertain macroeconomic conditions. Additionally, investors are monitoring the company's valuation and growth prospects. United Internet AG's recent earnings release showed weak guidance, which may have contributed to investor caution. Regulatory uncertainty and industry headwinds also pose challenges.

1.c. Company Highlights

2. United Internet's Half-Year Figures: Resilience in Uncertain Times

United Internet's half-year figures revealed a revenue growth of 4.3% to EUR 6.45 billion, with an EBITDA increase of 2% to EUR 1.35 billion, despite higher costs for the rollout of the 1&1 mobile network. The company's cash flow from operating activities increased to EUR 578.9 million, driven by the absence of a contingent payment to Deutsche Telekom. The actual EPS came out at EUR 0.28, relative to estimates at EUR 0.3533. This decent financial performance is a testament to the company's diversified portfolio, which provides stability and compensates for fluctuations in individual business models.

Publication Date: Aug -12

📋 Highlights
  • Revenue and EBITDA Growth: Total revenue increased by 4.3% to EUR 6.45B (forecast), with EBITDA up 2% to EUR 1.35B despite higher mobile network rollout costs.
  • IONOS Expansion: Applications segment revenue grew 3.1% to EUR 148M, driven by AI, cloud, and platform consolidation, with growth financed via equity, credit, and EU subsidies (net debt < EUR 800M).
  • Fiber Network Break-Even: 1&1 Versatel investing in Germany’s largest fiber optic network, expecting to break even next year with EUR 287.3M revenue and improving cash generation.
  • Capital Expenditure: CapEx remains at EUR 800M for 2023, focusing on fiber, mobile, and cloud infrastructure, with no equity increase planned due to EUR 1B credit line flexibility.
  • Cash Flow Strength: Operating cash flow rose to EUR 578.9M (Q2 2023), aided by the absence of a EUR 168M contingent payment to Deutsche Telekom, and liabilities increased to EUR 11.863B.

Segment Performance

The consumer access business, led by 1&1, saw a slight increase in service revenue to EUR 1.647 billion, with 3.89 million broadband customers and 2.44 million customer contracts. The business access segment, led by 1&1 Versatel, operates one of the largest German fiber optic networks, with a revenue increase of EUR 287.3 million. The applications segment, which includes GMX, WEB.DE, and IONOS, saw a revenue growth of 3.1% to EUR 148 million.

IONOS: A Growth Engine

Ralph Dommermuth, CEO of United Internet, expressed optimism about IONOS' growth potential, citing its strong development over the years and opportunities for further expansion. He highlighted IONOS' potential to sell its cloud infrastructure to public administrations and big federal authorities, emphasizing the importance of independent cloud solutions. Carsten Theurer added that IONOS' growth will be financed through a combination of equity, credit, and subsidies from the EU, without the need for an equity increase.

Valuation Metrics

With a P/E Ratio of -83.03, P/B Ratio of 0.9, and EV/EBITDA of 6.16, United Internet's stock appears to be undervalued. The company's dividend yield of 7.6% and free cash flow yield of 3.61% are also attractive, indicating that the market may be pricing in a level of uncertainty that the company's financial performance does not warrant. Additionally, United Internet's net debt to EBITDA ratio of 2.49 suggests a manageable debt level.

Outlook

Despite the economic uncertainty, Ralph Dommermuth expressed optimism about the company's resilience, citing its essential services and strong development over the years. He noted that the bigger worry is digital sovereignty, particularly in the context of AI, and whether Europe can catch up with China and the US in this area. Analysts estimate next year's revenue growth at 3.1%. With a solid financial performance and attractive valuation metrics, United Internet's stock may be worth a closer look.

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (3.72%)

6. Segments

Consumer Access

Expected Growth: 3.5%

United Internet AG's Consumer Access segment growth of 3.5% is driven by increasing demand for high-speed internet and mobile services, particularly among younger demographics. Additionally, the company's strategic acquisitions and partnerships have expanded its customer base, while investments in network infrastructure have improved service quality and reliability, attracting more subscribers.

Business Applications

Expected Growth: 4.2%

United Internet AG's 4.2% growth in Business Applications is driven by increasing demand for cloud-based services, digital transformation, and rising adoption of IoT devices. Additionally, the company's strategic acquisitions, innovative product offerings, and strong partnerships have contributed to its growth momentum.

Business Access

Expected Growth: 3.8%

United Internet AG's 3.8% business access growth is driven by increasing demand for high-speed internet and digital services, particularly among SMEs and households. Additionally, the company's strategic acquisitions, network expansion, and investments in 5G infrastructure have enhanced its market position, contributing to the growth.

Consumer Applications

Expected Growth: 4.5%

United Internet AG's Consumer Applications segment growth of 4.5% is driven by increasing demand for online services, expansion of 5G networks, and rising adoption of cloud-based solutions. Additionally, the company's strategic acquisitions and partnerships have enhanced its product offerings, leading to increased customer engagement and retention.

Corporate

Expected Growth: 3.2%

United Internet AG's 3.2% growth is driven by increasing demand for digital services, expansion of its fiber-optic network, and strategic acquisitions. The company's focus on cloud-based services, cybersecurity, and IoT solutions also contributes to its growth. Additionally, the rise of remote work and online shopping during the pandemic has boosted demand for its internet and cloud services.

7. Detailed Products

1&1 IONOS

A cloud-based web hosting and server solutions provider

GMX Mail

A free email service provider with unlimited storage and advanced security features

WEB.DE

A web-based email and online storage service provider

Fasthosts

A UK-based web hosting and domain registration service provider

InterNetX

A domain registration and web hosting service provider for resellers and businesses

Strato

A European-based web hosting and server solutions provider

8. United Internet AG's Porter Forces

Forces Ranking

Threat Of Substitutes

United Internet AG operates in a highly competitive market, and customers have various alternatives to choose from. However, the company's strong brand recognition and diversified product offerings mitigate the threat of substitutes to some extent.

Bargaining Power Of Customers

United Internet AG's customers have significant bargaining power due to the availability of alternative service providers. The company's pricing strategy and customer service play a crucial role in retaining customers.

Bargaining Power Of Suppliers

United Internet AG has a diversified supplier base, which reduces the bargaining power of individual suppliers. The company's strong financial position also gives it an upper hand in negotiations with suppliers.

Threat Of New Entrants

The threat of new entrants in the internet services market is moderate, as it requires significant investments in infrastructure and technology. However, the low barriers to entry in certain segments, such as web hosting, pose a threat to United Internet AG's market share.

Intensity Of Rivalry

The internet services market is highly competitive, with several established players competing for market share. United Internet AG faces intense competition from rivals such as Deutsche Telekom and Vodafone.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 40.03%
Debt Cost 4.75%
Equity Weight 59.97%
Equity Cost 6.82%
WACC 5.99%
Leverage 66.75%

11. Quality Control: United Internet AG passed 2 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Proximus

A-Score: 6.9/10

Value: 9.3

Growth: 3.4

Quality: 5.2

Yield: 9.4

Momentum: 7.5

Volatility: 6.3

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KPN

A-Score: 6.4/10

Value: 4.1

Growth: 4.1

Quality: 5.9

Yield: 7.5

Momentum: 7.0

Volatility: 10.0

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Freenet

A-Score: 6.3/10

Value: 6.6

Growth: 3.2

Quality: 7.5

Yield: 9.4

Momentum: 4.0

Volatility: 7.0

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Telia Company

A-Score: 6.2/10

Value: 4.4

Growth: 2.6

Quality: 4.0

Yield: 9.4

Momentum: 7.5

Volatility: 9.3

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United Internet

A-Score: 5.6/10

Value: 5.9

Growth: 4.4

Quality: 3.0

Yield: 6.9

Momentum: 9.0

Volatility: 4.7

1-Year Total Return ->

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Tele2

A-Score: 5.5/10

Value: 3.0

Growth: 3.2

Quality: 5.8

Yield: 8.8

Momentum: 9.5

Volatility: 3.0

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

24.92$

Current Price

24.92$

Potential

-0.00%

Expected Cash-Flows