Buy Now, Pay Later QVC & HSN $QRTEA | The Acquirer's Multiple®

During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Buy Now, Pay Later QVC & HSN $QRTEA. Here’s an excerpt from the episode:

Bill: Yeah. So, in case you don’t think QVC is bad enough to own, why don’t we heap leverage on it. So, you’re looking at a $10 billion EV with $6.7 billion of debt, $1 billion of cash, 4.5 of market cap. You got $1.6 billion of free cash flow to equity. So, you’re paying $1059 a share today. For that, not only do you get all that debt, you’re going to get a $3 per share distribution of preferred stock yielding 8% for the next 10 years, and $1.50 in cash that should come back to you by the end of the year. The stub is going to be a super levered equity that I suspect they turned the buyback machine on once they proved out that the entity actually can survive.

Normal thing that people would say is, “Isn’t QVC a dying brand?” I would say that I have thought the same thing. I went to an Investor Day, two investor days ago, and found myself looking at all the men in the room when QVC– it’s curate retail group. When they were presenting every cable bro in the room was looking at their phone and not paying any attention. The only people in the room that were actually listening to the presentation was my dumbass because I thought it was actually kind of interesting and two women. So, I think it’s a little bit of an orphaned investor base.

And then, the stock has crushed people souls. 2017, it was an $11.7 billion company, today $4.4 billion. It prints a billion bucks of cash flow almost– I mean, not like clockwork by any stretch. But I mean, a billion is sort of where it’s been for a long time. It doesn’t grow. It’s really, really hard to get excited about. It’s QVC and HSN. You really want to get fired for owning that? There’s a lot of reasons to avoid it. I also think it could be–

Toby: Can you just run those numbers again? What’s the EV?

Bill: $10.2 billion.

Toby: You get one free cash flow for that?

Bill: Yeah, but COVID has been a major bump to them. They printed a billion in free cash flow in the first six months. So, if we’re locked inside for another six months, you do have a super levered consumer discretionary staring down what could be a pretty bad recession and is likely to be. If I was going to say–

Jake: How bad does granny’s wallet lighten up here over the next three years?

Bill: I don’t know. It totally shocked me though. I’ll tell you what was like pretty surprising–

Jake: I mean cash sweaters are not going out of style. So, you have that going for you. [laughs]

Bill: Obviously not.

Toby: It can’t be disrupted.

Jake: Undisruptable.

Bill: I think that’s crazy. So, according to Bloomberg, sales in 2006 are $7.3 billion, sales in 2009, $8.3 billion. The sister entity that they– I’m going to try to do this without covering up the camera.

Toby: No, do it, it’s funny.

Bill: [crosstalk] I learned last time. And here we go.

[laughter]

Bill: I was looking up HSN because they acquired that in an effort to do synergies. You’ve got revenue of Home Shopping Network in 2007 was $2.9 billion, in ’09 was $2.7 billion, ’10 back to $3 billion. I don’t know, man. It’s a screen-based shopping network. They’re going to have to buy stuff on Facebook so that they can get traffic. But it’s a lot more resilient than I think people give it credit for, and I wouldn’t be totally shocked to see this stock a whole lot higher down the road.

Jake: Does cord cutting cut into that idea?

Bill: Well, so you don’t have the embedded– the part of the Xfinity platform that has apps. QVC actually has a very good product placement and I just got a Roku box. They actually feature QVC relatively prominently. I don’t really see why they couldn’t buy Facebook ads. Facebook’s the taxman of the internet, but I think that really your core competence that you’re betting on is some sort of screen-based curation factory. And they have like super fans, which I know sounds really fucking weird, but it’s objectively true. There are niches in the world that you can make money in. The biggest knock from my perspective is how are they’re going to grow. They don’t grow. They think they could get $400 million of synergies in the next two years out of this HSN integration. We’ll see. But if they do that, then they can buy back shares. It could be interesting.

Jake: [crosstalk] –that do? How much time do we have on this? We got a while?

Bill: Oh, it’s pretty laddered. Some of the weird stuff that you got to get your head around is like, you got maturities in ’22, $500 million of maturities. They’re going to need to refi some maturities here, but I don’t think the debt market has demonstrated that it’s closed to anyone. So, I think they should be able to push them out. The weird thing though, is Malone called–

Jake: CC 2007.

Bill: Well, Malone called the top in 2000 and 2001, and they issued a bunch of these convertible, exchangeable debentures, and they could be settled with Sprint and Motorola shares. When you’re going through and doing the research, you’re going to see these wonky debt things that are tied to curate and you’re going to say, “Why does this exist?” His 2001 shareholder letter actually tells you exactly why. They just straight up called the top and TMT, and issued a bunch of debt and got 30-year paper and eventually that stuff comes due. These guys are smart. They may overengineer things for a lot of people but they’re pretty intelligent.

Toby: Got the comment of the week here from James West. Can I buy it in seven easy payments of $9.99?

Jake: [laughs]

Bill: You only need one easy payment, dude. It’s $10.50 cents a share. Plus, maybe they’ll split the stock. Boom.

Toby: Wolfflow says, “Just pick up your phone and call your broker now.”

Bill: Look, I’m telling you it stinks. But you came to a value podcast.

Toby: Yeah, we’re still talking mispricing series, unpopular as that is. [chuckles]

Bill: I am saying that it’s mispriced. I understand– Look, it’s not ever going to trade at a 5% free cash flow yield. I get that, but I mean, it’s pretty deep. And the more it’s doubted, if they can continue to perform, they’re going to buy in a ton of shares, there are ways that you end up with a pretty good outcome on this.

Toby: I’m not disputing it. I think we should–

Bill: I [crosstalk] it. I own a tiny amount, that’s the disclosure. I’m pumping my book a little.

[laughter]

Toby: I think there should be more discussion of mispricings. Everybody’s talking about it. What’s the best business? That’s not the game. The game is what’s the most mispriced business?

Bill: Well, the interesting thing– [crosstalk] I mean, I get why it’s hated. And I’ve tried to figure out why does this thing trade where it does, and I just keep coming back to and maybe it’s a story that I tell myself, but like in the Momo world, you really want to call your clients and say, “I own QVC and HSN on your behalf.” You’re a manager that’s getting the shit kicked out of you and you’re going to be like, “Alright, I’m going down with the QVC ship.” I don’t know. That’s tough.

Jake: Wait, you didn’t buy FANG, but you bought this?

Bill: That’s right. Yeah. And then you’ve got to be like, “Well, Malone’s genius.” And then the client’s like, “Well, who the hell is Malone? I’m talking about Zuckerberg.”

Toby: “Can I meet that guy? I want to invest with him.”

[laughter]

Toby: [crosstalk] –with you.

Bill: That’s the point, here it is. [laughs] If they don’t grow and the multiple doesn’t grow, how do you earn? They’re giving you 45% of your cashback. This is the point. It’s not a cigar butt that you’re just waiting for [unintelligible [00:29:19]. These guys understand getting tax advantage distributions back to shareholders. They even said– I’m not going to pump and dump, shut up. Anyway.

They said we’re doing this also because it’s tax advantage probably to do it this year. This is a management team that understands extracting capital, which is not a typical, I think, pitch. And then the other thing is, they’re going to buy in shares. So, on a per-share basis– which I agree is not as valuable as growing the top line. You might have to sell it. It’s not one of these one-decision stocks. But you want to [crosstalk] or do you want to make money, you nerd?

Toby: Can you just clarify, is it Carl Malone or Post Malone that you’re talking about there?

Bill: All the Malones. They’re all together.

Jake: [laughs]

Bill: Funny enough, Post Malone helps LSXMA. So, anyway, all part of the Liberty family, folks. Keep it in there. Look, I’m not trying to die on the QVC sword. I’m just telling you. I think it’s an interesting special situation. If you like Greenblatt, it’s something I think you should look at. If you like good management teams, this is a good management team. If you like stable cash flows, I’d argue that they’re so much stable. I get it’s not sexy, go elsewhere for that.

Jake: Is that the quilting needle that you want to die on?

Toby: [laughs]

Bill: Yeah, dude. I just ordered my stuff. I do think it’s sort of funny. I found myself I need a new toothbrush and I was like, “I wonder if QVC has it.” So stupid.

Jake: Oh gosh.

Bill: I would never do that– [crosstalk]

Jake: Is that where you got that shirt from last week? [laughs]

Toby: With QVC, do you have to–? [crosstalk]

Bill: Don’t come at Tommy Bahama like that.

Jake: [laughs]

Toby: Do you have to sit there until the toothbrush comes on? How does that work?

Bill: No, you go on the website, you can buy it on the website.

Toby: Why would you do that? Rather than just looking through Amazon or something like that? Serious question.

Bill: I don’t know why anyone uses QVC., But I’ll tell you why because there are people that like their product. Why do people do anything with anything I like?

Jake: Yeah, it’s a curation.

Bill: It’s got [unintelligible [00:31:31] share. I think people like sitting there and watching screens. I don’t understand why people do half the shit that they do. But the fact of the matter is people do it.

Toby: Is this true? Brad Schultz says, “Tell your investors it’s the Malone guy who owns the most US land of any private investor.” Is that true?

Bill: He might. Yeah, I mean he’s up there for sure. I don’t know [crosstalk] Ted Turner. Yeah. Malone’s a monster. People who don’t know about John Malone are idiots.

Jake: [crosstalk] so maybe.

Bill: I mean, not that they’re idiots but they just haven’t studied it enough. Malone is a monster.

Toby: Malone is well known in the value community but most people who aren’t investors would be like, “Name an investor,” they’d probably say Buffett, they might say Buffett. I don’t think that they’d be able to name anybody else.

Bill: You watch Malone talk– [crosstalk]

Toby: He’s gone past Turner. There we go.

Bill: –how he starts to talk about how he views scale and how he thinks about strategy, that guy, I’ve learned probably as much from him as I have Buffett, but he’s not as well known. [crosstalk]

Toby: Where do you got to learn more? What’s the best source?

Bill: He’s got this talk on YouTube, that’s about two hours. I’d watch that.

Jake: Cable Cowboy.

Bill: Yeah, the book, Cable Cowboy, is really good. The old TCI annual reports are pretty good. There’s some Liberty Media letters that are floating around. It’s all good stuff.

Toby: Should Amazon buy it?

Bill: Sure, if they’re going to pay it higher than the current share price. What do I care?

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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