Swisscom SCMN reported first-quarter results that were a bit light, but we are maintaining our fair value estimate and moat rating for now. The firm’s revenue declined 2.4% year over year versus our full-year projection of a decline of 0.6%. Swisscom showed good subscriber growth, but weak average revenue per user, or ARPU. In Switzerland, the firm’s broadband base improved 4.1% to 1.75 million, its wireless base 3.1% to 6.3 million, and its TV base by 31.3% to 860,000, although its fixed-line base fell 4% to 3 million. In Italy, Swisscom’s broadband base gained 12.5% to 1.86 million. However, in Switzerland its blended ARPU for wireless-only customers fell 9.1% to CHF 40, while in Italy its broadband ARPU declined 10%. The firm is having success selling more bundles of service, which are generating higher ARPUs. We expect further bundling will help stabilize ARPUs and revenue going forward.

The lower revenue also pressured Swisscom’s margins with its EBITDA margin only reaching 37.7% versus our full-year estimate of 38.3%. While the firm is showing good subscriber growth, it is spending more to acquire those customers, hurting its margins. This is an area we will need to keep our eye on. If it continues, our assumptions might need to be revised downward.