Lumen Technologies Inc. (LUMN) Stock: Drops Over 24% Despite Strong Earnings Beat, Revenues Down Y/Y

TLDR

• Lumen shares trade near $6.42 after a steep post-earnings selloff
• Q4 adjusted EPS beat expectations despite falling revenues
• AI-driven fiber demand delivered $13 billion in PCF deals
• Debt reduced by over $5 billion, cutting interest costs sharply
• Management expects EBITDA growth and stronger cash flow in 2026

Lumen Technologies Inc. (LUMN) stock was trading at $6.42, down more than 24%, during Nasdaq real-time trading as investors reacted to mixed fourth-quarter results. While the company delivered a major earnings beat, ongoing revenue declines and weaker margins weighed heavily on sentiment, triggering a sharp selloff despite longer-term balance sheet progress.

Lumen Technologies, Inc., LUMN

Q4 Earnings Surprise Overshadowed By Revenue Decline

Lumen reported adjusted earnings of 23 cents per share for the fourth quarter of 2025, far above the Zacks Consensus Estimate that had projected a loss of 21 cents. This marked a sharp improvement from an adjusted loss of 9 cents in the prior-year quarter. The earnings surprise highlighted the impact of aggressive cost controls and restructuring efforts.

Revenue told a different story. Quarterly sales fell 8.7% year over year to $3.041 billion, missing consensus estimates by 1.4%. Full-year revenue declined 5% to $12.4 billion, reflecting continued pressure across most operating segments. Investors appeared more focused on the top-line erosion than the headline earnings beat.

AI-Fueled Fiber Demand Emerges As A Key Growth Driver

Lumen emphasized rising demand for high-capacity fiber connectivity driven by artificial intelligence workloads. By the end of 2025, the company had secured $13 billion in private connectivity fabric deals. Revenue recognition from these deals reached $41 million in the fourth quarter and $116 million for the full year.

Management highlighted that fiber capacity is becoming increasingly scarce as hyperscalers and enterprises race to support AI applications. Adoption of Lumen’s network-as-a-service platform supports this trend, with active NaaS customers rising 29% quarter over quarter. The company also pointed to its Internet on Demand and IoT Offnet offerings as contributors to future digital service growth.

Segment Performance Reflects Broad-Based Pressure

Business segment revenue declined 8.8% to $2.425 billion, impacted by one-time items that had boosted results in the prior year. Large Enterprise revenue slipped 1% to $758 million, while Mid-Market Enterprise revenue fell 11% to $472 million. Public Sector revenue declined 18% to $457 million.

Wholesale revenue dropped 8% to $661 million due to ongoing declines in voice, managed services, and VPN products. Mass Markets revenue decreased 7.9% to $616 million, a segment now divested following the fiber asset sale to AT&T.

Margins, Cash Flow And Balance Sheet Progress

Operating expenses increased 2% year over year to $3.241 billion, resulting in an operating loss of $200 million compared with operating income a year earlier. Adjusted EBITDA declined to $767 million, with margins contracting to 25.2% from 31.6%.

Despite weaker margins, Lumen made significant balance sheet progress. The company achieved $400 million in run-rate cost benefits in 2025, exceeding its target. Proceeds from the $5.75 billion sale of its Mass Markets fiber business were used to retire super-priority bonds, reducing total debt to under $13 billion. Annual interest expense has fallen by nearly $500 million over the past year, unlocking meaningful cash flow potential.

2026 Outlook And Investor Focus

Management reaffirmed that adjusted EBITDA will return to growth in 2026, forecasting a range of $3.1 billion to $3.3 billion. Capital expenditures are expected to decline to between $3.2 billion and $3.4 billion, reflecting the completed asset sale. Free cash flow is projected at $1.2 billion to $1.4 billion.

While Lumen stock has delivered strong gains over the past year, the sharp decline following earnings shows investors remain cautious. The market appears to be weighing near-term revenue pressure against longer-term benefits from AI-driven fiber demand, cost reductions, and a significantly improved balance sheet.

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