Telefonica 1Q26 results beat expectations, with continued acceleration in Spain growth

Overview

This report is Goldman Sachs' commentary on Telefonica's 1Q26 results. The report focuses on continued constant-currency group growth, accelerating growth in the Spanish business, signs that the decline in German revenue may be nearing a top, and the contribution from Brazil to group performance. The company reiterated its 2026 guidance, but the report also flags competition, regulatory, macroeconomic, and transaction execution risks across multiple regions.

Core views

The core view is that Telefonica's 1Q26 performance was better than market expectations, with group constant-currency revenue and EBITDA growing 0.8% and 1.8% year on year, respectively. The Spanish business was the main positive driver, with revenue up 2%; improved convergence bundles and cross-selling made premium customer retention more stable, and convergence churn fell to 0.7% in 1Q26 from 0.9% in 1Q25 and 0.8% in 4Q25. Competition in the premium market is relatively rational, but competition in the low-end market remains intense.

Analysis framework

The report evaluates Telefonica's near-term operating performance by comparing actual results with consensus expectations, analyzing 2026 guidance definitions, breaking down regional businesses, and tracking key KPIs. Because the company's guidance uses an organic growth definition that excludes VMO2, the report also estimates the implied FY26 organic revenue and EBITDA growth rates.

Methodology notes

• equity_factor_analysisGS Factor Profile

  Growth, financial returns, valuation multiples, and composite percentile comparison

  Goldman Sachs Factor Profile compares individual stocks with the market and peer group on percentile rankings using sales, EBITDA, and EPS growth; financial return metrics such as ROE, ROCE, and CROCI; and valuation metrics such as P/E, P/B, P/D, EV/EBITDA, and EV/FCF.

• m_and_a_assessmentM&A Rank

  Acquisition target probability score

  Goldman Sachs uses an M&A score from 1 to 3 to assess the probability of a company becoming an acquisition target, where 1 indicates high probability, 2 indicates medium probability, and 3 indicates low probability; high or medium probability may be included in target price analysis.

• financial_databaseQuantum

  Proprietary financial database

  Quantum is Goldman Sachs' proprietary database for reviewing companies' historical financials, forecasts, and ratios, and can be used for in-depth single-company analysis and cross-company comparison.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Telefonica (TEF.MC)

  Core covered company in the report

  Strengths

  1Q26 results were better than expected, group constant-currency growth continued, premium customer retention in Spain improved, and 2026 guidance was reiterated.

  Weaknesses

  Low-end market competition remains intense, the German business still faces competitive pressure, and some growth improvement depends on regional execution.

  Comparison

  Competition in the premium Spanish market is relatively rational, while the low-end market is more intense; the report also separately lists risks related to Germany, Brazil, Latin America, and the UK.

  Risks

  Competition and churn in Spain, competition in Germany, tax and regulatory migration execution in Brazil, FX and macro volatility in Latin America, and capex and M&A risk in the non-consolidated UK business.

Key data

• Group constant-currency revenue/EBITDA growth0.8% / 1.8%Continued 1Q26 group growth is a key focus for investors.
• Reported revenue growth+0.4%This slowed from +0.7% year on year in 4Q25, but improved relative to the declines seen in the rest of FY25.
• Spain revenue growth2%Supported by convergence bundles, cross-selling, and improved premium customer retention.
• Spain convergence churn0.7%Below 0.8% in 4Q25 and 0.9% in 1Q25.
• 2026 guidancereiteratedThe company reiterated its 2026 guidance; the guidance is on an organic growth basis and excludes VMO2.
• Goldman Sachs global equity coverage3,074 equity securitiesDisclosure basis as of 2026-04-01.

Impact & implications

The earnings beat and accelerating growth in Spain should help improve market confidence in Telefonica's operating inflection point, especially against a backdrop of German revenue declines approaching a top and continued improvement in Brazil. However, competition in telecom, customer churn, regulatory migration in Brazil, and macro and FX volatility in Latin America may still limit valuation re-rating.

Risks

• A further intensification of competition in Spain or an increase in customer churn.
• Competitive pressure in Germany.
• Tax risk in Brazil, execution risk in the migration of the regulatory regime, risks related to asset disposals, and macro-driven pressure on mobile prepaid services.
• Execution risk in Brazil's IT and new revenue stream growth strategy, as well as competition in mobile postpaid and fixed broadband.
• FX and macroeconomic volatility in Latin America.
• The network upgrade cycle for the non-consolidated UK business could lead to capital expenditure above expectations.
• Value-destructive M&A and M&A execution risk.

What to watch

• Whether convergence churn in Spain continues to decline.
• Whether competition in the premium Spanish market remains rational.
• Whether the decline in German revenue has indeed peaked in 1Q26.
• Progress on regulatory migration, asset disposals, and new revenue stream execution in Brazil.
• Whether FY26 organic revenue and EBITDA growth remain consistent with the company's reiterated guidance.
• The impact of FX and the macro environment in Latin America on operating performance.