Hello good friends.
I've been looking at $CHTR for a bit, and I think it's a very interesting play. The stock is down about 80% from it's highs, and the reasons for that are reasonable: they're losing subscribers and market share to fiber, wireless, and satellite.
However I believe that the sell off has gone too far. The company is now so cheap that the market is pricing in catastrophic failure, which I don't believe will happen.
The initial picture when you look at $CHTR sucks honestly. $90 billion in debt, revenue dropping due to subscriber loss, insane capex. But when you look a bit deeper, this company pumps some crazy numbers.
P/E: 3.5
FCF: $4.4 billion (last year)
FCF Yield: 24% ->>> !!!! insane
Ok, but there must be a reason for these numbers right? What's the reason? Honestly, I'm not sure. Let's go through all the bad.
- Debt - $90 billion
With an $18 billion market cap, the debt number seems insane. Although these telecom companies do seem to operate with higher leverage ratios, $CHTR's leverage is higher than its peers. This has both positive and negative side effects. On the positive side it increases shareholder returns (because debt is money that shareholders aren't putting up, but is working for the shareholder nonetheless). On the negative side, the more debt you have the more likely it is that the company death spirals, and the more likely cash must be used to pay back debt in order to maintain an investable leverage profile.
For $CHTR however, death spiral and bankruptcy risk is still pretty far in the future. $CHTR still carries investment grade on most of its debt, and the debt cliffs for refinancing aren't coming until \~2030. Management has reiterated plans to deleverage as well, whether that's a good choice, I'm not sure.
Of course the debt burden problem will be exacerbated with continued subscriber loss, which I believe is part of the reason that management wants to deleverage. But again, $CHTR is not at any risk of bankruptcy for at least for the next 2 years.
I think that the major risk of the debt is that rates remain high through the 2030s and $CHTR has to refinance a large portion of debt at higher rates, leading to further leverage pressure and the increased need to deleverage.
https://preview.redd.it/xh2euvl43loh1.png?width=1912&format=png&auto=webp&s=672a0e2e089023e56cd6962f1aadab2b593bc00c
- Subscriber Loss
This is a big one, and I believe it's the primary reason that this company is so hated. The narrative is so easy. SpaceX is extremely hyped right now. What's more cool than satellites in space? Fiber is coming to everywhere. Wireless is cheaper than everything.
And this has been showing up. CHTR has been losing subscribers in internet which is their most profitable and highest margin sector. About 170k lost last quarter from their total of \~29 million. But I mean let's compare the products.
Wireless - Cheap, internet can be spotty, terrible for gaming / latency / consistent uptime. Basically for people who use internet just for browsing and light / medium streaming
Starlink - IDK how expensive it is, but probably has similar problems to wireless I'd imagine. I mean surely sending a signal to space and back is not the most efficient way to transmit data. Mainly for rural people with no other coverage options.
Fiber - The best for speed, data transmission, latency. If you want the best internet you get this
Cable - similar price to fiber, worse quality product, but actually not that much worse.
Don't know if you know this but cable internet providers actually run fiber for much of the data transmission. It's only the last bit to your house that's cable. This actually leads to comparable speeds and performance to Fiber. They call this DOCSIS 4.0 or something (terrible marketing name). The product is quite good, the marketing not so much. "Fiber" just has an aura that cable can't match.
And honestly off marketing alone, the majority of people will choose fi