United Internet AG, a name that might not immediately ring a bell for the average investor, has been quietly building a digital empire. They provide broadband, mobile internet, and application services to millions of customers across Europe, operating under a multitude of brands like 1&1, GMX, and IONOS. While the company's recent focus has been on the ambitious and somewhat controversial rollout of their Open RAN mobile network, something else caught my eye in their Q1 2024 earnings transcript [1]. It's a subtle detail, a seemingly innocuous statement about CapEx, but one that hints at a potentially massive shift in strategy and a hidden treasure trove of profitability.

United Internet's CFO, Ralf Hartings, casually mentioned that he expects CapEx for the year to fall at the "lower end" of their previously stated 10-20% growth range. This might seem like a minor adjustment, a simple phasing of expenditures. But what if it's more than that? What if it signals a strategic decision to prioritize immediate profitability over aggressive expansion?

Let's delve into the numbers. In 2023, United Internet spent €797.9 million on CapEx, driven primarily by the rollout of their fiber optic network and the construction of their mobile network [2]. A 10-20% increase would translate to a CapEx range of €877.7 million to €957.5 million for 2024. However, if Hartings is truly guiding towards the "lower end," we're looking at a CapEx figure closer to €877.7 million, a significantly lower investment than anticipated.

This has profound implications. First, it frees up substantial cash flow. Even at the low end of the range, the reduction from the high-end estimate represents nearly €80 million in freed-up cash. This is money that can be used for share buybacks, debt reduction, or, most intriguingly, reinvested in their existing high-margin businesses.

Second, it suggests a shift in focus towards maximizing the profitability of their current assets. Remember the "treasure trove" mentioned by 1&1 CEO Ralph Dommermuth during their Q4 2023 earnings call [2]? He was referring to the potential of their Access segment, where EBITDA essentially equates to EBIT due to minimal depreciation. Dommermuth stated that they were aiming for €850 million to €900 million in EBITDA from this segment, boldly claiming, "If we can get there, we can get to 1 billion as well."

This is where the reduced CapEx becomes crucial. By easing off on aggressive network expansion, United Internet can channel resources into optimizing their existing Access business. This might involve enhancing customer service, developing new value-added services, or even strategically raising prices, capitalizing on their dominant market position in certain segments.

Furthermore, don't underestimate the power of their vast data treasure. With 20 million user consents for commercial data usage, United Internet possesses a gold mine of information that can be leveraged for targeted advertising and personalized service offerings. By focusing on data analytics and customer insights, they can unlock hidden revenue streams and further boost profitability.

The hypothesis is simple: by prioritizing the optimization of their existing, high-margin Access business, United Internet can potentially achieve Dommermuth's audacious €1 billion EBITDA target. This would represent a massive jump from their 2023 Access EBITDA of €786 million [2] and significantly bolster their overall profitability.

While the market seems focused on the drama surrounding the Open RAN rollout and the potential for spectrum allocation, they might be missing the bigger picture. United Internet is subtly shifting gears, focusing on maximizing the value of their existing assets, and quietly building towards a future of unprecedented profitability. The silent giant is awakening, and those who pay attention might just reap the rewards.

Projected CapEx Spending

The following chart illustrates United Internet's potential CapEx spending based on their CFO's statements. The green bars represent the potential for reduced spending by targeting the "lower end" of their growth range.

"Fun Fact: United Internet owns over 250 different web domains, making it one of the largest domain portfolio holders in the world. This vast collection of digital real estate reflects the company's sprawling online presence and its reach across various customer segments."