Excellent deep dive on CHTR/LBRDK! The Liberty Broadband angle is particulary compelling - the 4% merger spread essentially gives you Charter's equity at an additional discount while you wait for the deal to close. Your point about Charter bleeding subs but still growing topline/EBITDA/EPS through 2030 is counterintuitive but well-reasoned. The converged mobile+broadband bundle is the key unlock here - if Charter hits 50% mobile penetration (vs 20% today), the churn dynamics completely change since customers are much stickier with bundled services. The Cox merger at ~6X EBITDA adds scale economies and mobile runway at an attractive multiple. Given the 10%+ FCF yield and aggressive buybacks offsetting Cox dilution, this looks like exceptional risk/reward even in a protracted fiber+FWA share loss scenario.
Fantastic write-up on Charter! There is much controversy on Charter, but that creates the opportunity (either long or short).
Bear case: broadband subscribers continue to melt --> melting cashflows + high leverage --> stock will get crushed
Bull case: broadband subscribers will stabilize / grow --> stable / growing cashflows + massive buybacks --> massive increase in FCF / share --> stock will deliver high IRR
The Cox-merger should prove to be highly synergistic (cost efficiency & mobile growth). That creates a nice downside protection, but it will take quite a bit of time to get these synergies.
2026 will be a highly interesting year for Charter.
1. From 2022 to 2025 Cable One footprint went from 30% FTTH overlap to ~ 60%. Within 3 years. Unprecedentd. FTTH is superior to coax, in performance and lifetime TCO.
2. FWA has leapfrogged the local monopolies that cable firms once were. Before they could put up all kind of obstacles if a competitor wanted to enter; cooperating with local government (see e.g. Google Fiber that just gave up as Comcast tackled and blocked them in every community they entered).
With FWA they can't do that. Hence, Verizon 5G going from 0 to 500k/quarter net adds within 12 months after launch in 2021. Watershed moment was 2022Q2 - first time ever FWA/FTTH had more net adds than cable. Cable in fact had worst quarter since cable started offering broadband *from memory.
This is not the benign competition of earlier periods such as early 2000s with telco's selling ADSL or Verizon FioS (fber) going live in 2008 or so. This is different. Factor in the debt and equity could be wiped out a la Valeant.
An interesting detail: Charter will issue Cox 50.6 million shares (if fully converted). At Charter's current share price, this is worth ~13.5 billion USD (50.6 * ~265 USD). So it will take Charter ~two years of share repurchases to fully offset the acquisition equity issuance. Put differently, Charter shareholders will own a much bigger and better enterprise (more customers, massive synergies, less leverage) in two years with the same sharecount as of today (standalone). Thoughts?
Not quite sure I follow here. The capital return decision to buy back shares is independent of the merger decision. I think your gist is "Is the Cox merger accretive?" to which the answer is (in my opinion) definitively yes, given that you think cable has a long-term place in the market.
Great write-up! Where did you find comfort in the possibility that, even despite bundling, customers continue churning away from broadband to fiber given its "premium" and "future" imaging?
Thanks for the compliment and great question. Honestly, this could be its own full-length article. On bundling, my base case is that everyone has bundling very soon. VZ buys Frontier, T launches FWA via $SATS spectrum. Comcast has NOW brand which is just wired FWA. T now offers streaming add-ons with Fiber subs.
The delta will be the value/premium component of the bundle which is where $CHTR has an edge. Charter customers are overindexed to value-seeking and mid-tier customers relative to $CMCSA or non-TMUS telco peers. Their customers are more likely to view discounted MVNO phone lines as a benefit because they're already more likely to be (for example) Cricket customers. Likewise, they're less likely to churn to fiber because fiber is marketed and priced as a premium product.
This should not be interpreted as fiber wont take market share. It will. Right now ~60% of the footprint is overbuilt and that will reach c.100% by 2030. Fiber will take 40% share anywhere its laid by my math. That might come up even over time as bundling comes online with VZ. Rough math and paralleling the new broadband market with the mature wireless market implies ~40% HFC share in equilibrium.
Now the nice thing about this market is that its ridiculously modelable. Disclosures across the board are extensive. I have a 60 quarter (actual + forecast) model of each KPI in the space into 2030 for both Comcast and Charter. I also have very granular data around fiber overbuild pricing, cost, etc + FWA cost and deployment. Whats really interesting is as we fiddle with these big models that represent more or less the entire market fabric, what we find is that even if $CHTR bleeds subs into 2030 (which isnt that unlikely), they still grow topline at 0 - 2%, EBITDA at 2 - 4%, and EPS at 5 - 10%. Thats pretty unintuitive but its because of cable pricing, mobile growth, and roll-off of zero margin cable TV in combination with modest buybacks.
The big big risk is that pricing resets for the space, but as far as I can tell fiber is incapable of creating that reset unless it goes negative ROIC and VZ and T (the only meaningful players) are rationally unwilling to cut fiber price to take share as cable would simply slash their own price and no one would win. Summarizing all this... I think $CHTR is in an okay spot here as they offer a value bundle, but the truth of the matter is even in protracted share loss assuming pricing matches ~GDP growth, the business is actually set to grow despite a cigar butt multiple. I can sleep pretty well at night with that information.
My conversation with other mid-to-long-term-oriented holders is that they haven't gone as in the weeds on mapping out the actual dynamics of the shift, which is creating capitulation in holders and locking out marginal buyers. This is kind of a quintessentially "Cornerstone" thesis where you can get extremely deep in the weeds and outmodel others. Hopefully this answers your question.
<<If $CHTR bleeds subs into 2030 (which isnt that unlikely), they still grow topline at 0 - 2%, EBITDA at 2 - 4%, and EPS at 5 - 10%.>>
I think this might turn out to be the base case. Without #sub growth, $chtr will be perceived as value tra, a permanent declining business. I think it's the perfect time for $chtr to buyback 80% of the shares in the coming years.
*But I don't expect stock price to fly given topline is still lacking.*
I think that could be the reason Buffet exited his position as he sees lost decade coming for $chtr price.
$CHTR bleeding subs for years is and should be the base case. I'd argue this is a very poor buy and hold but that you'll get several cracks at a lay-up trade as things restabilize, one of which is right now. We went through this same situation last summer/fall. I think we'll get deceleration in losses / pop from merger / pop from big buyback announcement in the next few quarters and then itll be time to get out again till the next market freak out on cable.
Excellent deep dive on CHTR/LBRDK! The Liberty Broadband angle is particulary compelling - the 4% merger spread essentially gives you Charter's equity at an additional discount while you wait for the deal to close. Your point about Charter bleeding subs but still growing topline/EBITDA/EPS through 2030 is counterintuitive but well-reasoned. The converged mobile+broadband bundle is the key unlock here - if Charter hits 50% mobile penetration (vs 20% today), the churn dynamics completely change since customers are much stickier with bundled services. The Cox merger at ~6X EBITDA adds scale economies and mobile runway at an attractive multiple. Given the 10%+ FCF yield and aggressive buybacks offsetting Cox dilution, this looks like exceptional risk/reward even in a protracted fiber+FWA share loss scenario.
Fantastic write-up on Charter! There is much controversy on Charter, but that creates the opportunity (either long or short).
Bear case: broadband subscribers continue to melt --> melting cashflows + high leverage --> stock will get crushed
Bull case: broadband subscribers will stabilize / grow --> stable / growing cashflows + massive buybacks --> massive increase in FCF / share --> stock will deliver high IRR
The Cox-merger should prove to be highly synergistic (cost efficiency & mobile growth). That creates a nice downside protection, but it will take quite a bit of time to get these synergies.
2026 will be a highly interesting year for Charter.
Hi
Hi
Watch out.
1. From 2022 to 2025 Cable One footprint went from 30% FTTH overlap to ~ 60%. Within 3 years. Unprecedentd. FTTH is superior to coax, in performance and lifetime TCO.
2. FWA has leapfrogged the local monopolies that cable firms once were. Before they could put up all kind of obstacles if a competitor wanted to enter; cooperating with local government (see e.g. Google Fiber that just gave up as Comcast tackled and blocked them in every community they entered).
With FWA they can't do that. Hence, Verizon 5G going from 0 to 500k/quarter net adds within 12 months after launch in 2021. Watershed moment was 2022Q2 - first time ever FWA/FTTH had more net adds than cable. Cable in fact had worst quarter since cable started offering broadband *from memory.
This is not the benign competition of earlier periods such as early 2000s with telco's selling ADSL or Verizon FioS (fber) going live in 2008 or so. This is different. Factor in the debt and equity could be wiped out a la Valeant.
An interesting detail: Charter will issue Cox 50.6 million shares (if fully converted). At Charter's current share price, this is worth ~13.5 billion USD (50.6 * ~265 USD). So it will take Charter ~two years of share repurchases to fully offset the acquisition equity issuance. Put differently, Charter shareholders will own a much bigger and better enterprise (more customers, massive synergies, less leverage) in two years with the same sharecount as of today (standalone). Thoughts?
Not quite sure I follow here. The capital return decision to buy back shares is independent of the merger decision. I think your gist is "Is the Cox merger accretive?" to which the answer is (in my opinion) definitively yes, given that you think cable has a long-term place in the market.
Great write-up! Where did you find comfort in the possibility that, even despite bundling, customers continue churning away from broadband to fiber given its "premium" and "future" imaging?
Thanks for the compliment and great question. Honestly, this could be its own full-length article. On bundling, my base case is that everyone has bundling very soon. VZ buys Frontier, T launches FWA via $SATS spectrum. Comcast has NOW brand which is just wired FWA. T now offers streaming add-ons with Fiber subs.
The delta will be the value/premium component of the bundle which is where $CHTR has an edge. Charter customers are overindexed to value-seeking and mid-tier customers relative to $CMCSA or non-TMUS telco peers. Their customers are more likely to view discounted MVNO phone lines as a benefit because they're already more likely to be (for example) Cricket customers. Likewise, they're less likely to churn to fiber because fiber is marketed and priced as a premium product.
This should not be interpreted as fiber wont take market share. It will. Right now ~60% of the footprint is overbuilt and that will reach c.100% by 2030. Fiber will take 40% share anywhere its laid by my math. That might come up even over time as bundling comes online with VZ. Rough math and paralleling the new broadband market with the mature wireless market implies ~40% HFC share in equilibrium.
Now the nice thing about this market is that its ridiculously modelable. Disclosures across the board are extensive. I have a 60 quarter (actual + forecast) model of each KPI in the space into 2030 for both Comcast and Charter. I also have very granular data around fiber overbuild pricing, cost, etc + FWA cost and deployment. Whats really interesting is as we fiddle with these big models that represent more or less the entire market fabric, what we find is that even if $CHTR bleeds subs into 2030 (which isnt that unlikely), they still grow topline at 0 - 2%, EBITDA at 2 - 4%, and EPS at 5 - 10%. Thats pretty unintuitive but its because of cable pricing, mobile growth, and roll-off of zero margin cable TV in combination with modest buybacks.
The big big risk is that pricing resets for the space, but as far as I can tell fiber is incapable of creating that reset unless it goes negative ROIC and VZ and T (the only meaningful players) are rationally unwilling to cut fiber price to take share as cable would simply slash their own price and no one would win. Summarizing all this... I think $CHTR is in an okay spot here as they offer a value bundle, but the truth of the matter is even in protracted share loss assuming pricing matches ~GDP growth, the business is actually set to grow despite a cigar butt multiple. I can sleep pretty well at night with that information.
My conversation with other mid-to-long-term-oriented holders is that they haven't gone as in the weeds on mapping out the actual dynamics of the shift, which is creating capitulation in holders and locking out marginal buyers. This is kind of a quintessentially "Cornerstone" thesis where you can get extremely deep in the weeds and outmodel others. Hopefully this answers your question.
<<If $CHTR bleeds subs into 2030 (which isnt that unlikely), they still grow topline at 0 - 2%, EBITDA at 2 - 4%, and EPS at 5 - 10%.>>
I think this might turn out to be the base case. Without #sub growth, $chtr will be perceived as value tra, a permanent declining business. I think it's the perfect time for $chtr to buyback 80% of the shares in the coming years.
*But I don't expect stock price to fly given topline is still lacking.*
I think that could be the reason Buffet exited his position as he sees lost decade coming for $chtr price.
$CHTR bleeding subs for years is and should be the base case. I'd argue this is a very poor buy and hold but that you'll get several cracks at a lay-up trade as things restabilize, one of which is right now. We went through this same situation last summer/fall. I think we'll get deceleration in losses / pop from merger / pop from big buyback announcement in the next few quarters and then itll be time to get out again till the next market freak out on cable.
Fantastic and insightful comment, thanks for posting.