Operator Deutsche Telekom just published its results for 2024. The company announced a return to net profit in the fourth quarter, thanks to stronger-than-expected sales growth. Nevertheless, the share price is down in Frankfurt, due to forecasts for 2025 below analysts' expectations.
Beyond the detailed analysis of results, what's interesting about Deutsche Telekom is that the company is representative of the characteristics of European indices, but also emblematic of Europe's challenges.
Low exposure to the domestic market
In fact, despite its very Germanic name, the company is more exposed to the international market. Around two-thirds of sales come from the United States, via its subsidiary T-Mobile US. And it is in the US market that growth is strongest. In the last quarter, sales rose by 7.8% in the USA, compared with a 0.2% fall in Germany.
Deutsche Telekom is not an isolated case in Germany. For all DAX companies, 24% of sales are generated in the USA, compared with just 20% in Germany. Exposure to the domestic market is therefore fairly low, and this is a trend that can be observed for listed European companies as a whole. CAC 40 companies, for example, generated just 22.7% of their sales in France in 2023. By contrast, 60% of the revenues of S&P 500 companies come from the USA.
This partly explains the dichotomy often observed between European indices and the European economy. The DAX is a perfect illustration of this, since despite a German economy in recession in 2023 and 2024, the index is up by around 60% over 2 years. In addition to its low exposure to Germany, this performance is also due to its sector composition. Over the past ten years, the weight of the automotive sector in the DAX has fallen from 17% to just 7%. And a number of large stocks, such as Rheinmetall, SAP and Siemens Energy, have had impressive stock market performances and are driving the index as a whole.
Telecoms: emblematic of a European challenge
Deutsche Telekom is also representative of another European challenge: the deepening of the single market. Alongside energy and finance, telecoms is the third sector where there is a lack of integration at European level. There are around a hundred operators on the Old Continent (and 27 national markets), compared with just three in the USA (AT&T, Verizon and T-Mobile).
This market fragmentation is positive for consumers: more competition means lower subscription prices. But an overly fragmented market means too many small players, and therefore no major champion to emerge and then compete on a global scale. The lack of world leaders is one of Europe's handicaps.
It also poses a problem of competitiveness. In the United States, the three operators who share the market are far more profitable than their European counterparts. They therefore have more capacity to invest in deploying new technologies. So, when it comes to 5G deployment, Europe is lagging behind both the US and China. This digital lag is holding back innovation and therefore growth.
