Why Did Telefonica Stock Plunge 16.49%? DZ Bank Downgrade

On May 16, 2025, Telefonica's stock experienced a significant drop of 16.49% in pre-market trading, reflecting a cautious outlook from investors and analysts.

DZ Bank recently downgraded Telefonica from a Hold to a Sell rating, setting a price target of EUR 3.70. This move underscores the bank's concerns about the company's near-term performance prospects, which has likely contributed to the recent decline in stock price.

Despite the downgrade, Telefonica has shown positive developments in its key business segments. In Spain, the company reported a 1.7% year-on-year increase in domestic revenue and a 1% quarter-on-quarter acceleration in EBITDAaL. Operating cash flow also improved by 2% due to a reduction in capital expenditures. In Brazil, revenue rose 6% above inflation, and EBITDAaL minus CapEx increased by 14.5% with margin expansion. Similar positive trends were observed in Germany and the UK, where EBITDAaL minus CapEx grew by 4.8% and 15.2% year-on-year, respectively.

Telefonica Tech also saw a 6.6% year-on-year increase in revenue. The company's strategic sales in Hispam, including operations in Argentina and Peru, have improved financial flexibility and reduced exposure. Additionally, Telefonica has made significant progress in fiber and 5G rollout, with 1.5 million premises connected to fiber and 75% 5G coverage in core markets.

However, the company faces challenges such as intense competition, foreign exchange fluctuations, and a decline in wholesale revenue in Spain. The pause in the NetCo sale process in the UK has also created uncertainty around future fiber expansion plans. Despite these challenges, Telefonica has reiterated its 2025 guidance, expecting revenue, EBITDA, and EBITDAaL minus CapEx to grow in organic terms, with a confirmed cash dividend for 2025.