In their recent episode of the VALUE: After Hours Podcast, Jake Taylor, Bill Brewster, and Tobias Carlisle discussed Why Is $ATUS Share Price Dropping? Here’s an excerpt from the episode:
Bill: All right. So, Altice showing people why hedge fund hotels and leverage is probably not a great combination. It has had an interesting path. My infatuation with the idea came from the idea that I’ve historically done pretty well with cable assets and think I understand the industry relatively well. Altice is a company that is not known for its customer service, is not known for employee morale being particularly high, is not known for cutting prices to its customers.
Tobias: Is it the cable company we’re were talking about here?
Bill: Yeah. Well, look, I think that there’s a reasonable argument to be made that Comcast and Charter actually have changed the way that they approach the market. Maybe that’s a stupid comment that’s driven by endowment bias, but I’m not sure that the AT&T and Verizon Fios subscribers are super happy with their service either.
Tobias: No. I got Cox in, they’re just as bad as everybody else. The price is going up 2x, cool. You’ve got no one else, you can go Altice. I know it’s cool. I just let you know.
Jake: Yeah. I didn’t really ask if it was cool. [laughs]
Bill: Here’s a good thing with Altice. They have this rack rate, and I guess that people that are paying the rack rate or people that don’t call, and they don’t call for 10 years, so these are people that are just paying their bill and haven’t [crosstalk]
Jake: The grandma.
Bill: Yeah, and how are they rewarded for not churning and not calling constantly? Altice fucks them as hard as humanly possible. I think that as a general like– What has cracked the story is, they have gone to negative sub declines this year. They’re going to say if you look at 2019 on a two-year stack basis, our growth is still there. 2020 pulled forward some demand. We haven’t quite had the same mover churn that we normally have. I think reality is competition has gotten somewhat tougher in some of the markets, and they’re now losing incrementally to Fios. They have the thing that got me excited, well, not excited about the idea. The reason the idea was palatable to me is they have a footprint called Suddenlink. Suddenlink is in a lot of the Sun Belt, and it competes against some legacy assets that I don’t think are very strong to compete against.
Altice has always, if you’ve done the research on them, they’ve been pretty– At least the company line has been that they’re going to invest in fiber. The math of it all worked, I think still probably does work. I think a really good podcast to listen to if you’re interested is Kyler Hasson and Andrew Walker did a podcast on Altice. If you listen to a podcast, it is a bull pitch for a stock, and it takes about 55 minutes to get to one thing nice about the company. So, this is a real value investment. Oh, it’s hairy, and it’s priced in, and it justifies the spread to the good competitors. I think that may not prove to be incorrect– but my cost basis was 33. I think it’s now a teenager. Last I checked, it was at 19.98. There are now concerns that management is going to take the company under almost all of the analysts on the street say, this thing’s too cheap, but who knows if management’s going to screw you as a minority shareholder.
In the Goldman Sachs conference that tanked the entire stock, the CEO said, “We may re-lever the balance sheet. We’re going to invest for a couple quarters, and then we’re going to revisit.” The Goldman analyst said, “You’re already four and a half to five times levered–” I think he said five times your targets four and a half to five. “You said re-lever. Are you talking about taking the company private?” And the CEO, Dexter, said, “Yes, that was the code that I was talking about.” So, I think that people that I have seen dunking on the idea are probably too confident that the story has played out.
If it does get taken private somewhere around $30, I think that it would behoove people to remember that this is a game of bet some of which lose, and if your downside on a bet is somewhere between 10% and 20%. Maybe that’s not such a bad outcome. But I personally sold on Friday, because I think that the really, really hard thing to figure out in a name, this is a company– people don’t like when you call it a name, but at this point, it’s just a fricking stock trading on paper. It’s not really a company at this point. The reason that I say that is now you almost have to handicap not what do I think the business can do, it’s what do I think management will do to me before the business does what I think it will do. That puts an artificial duration stoppage on a bet in my mind, and ironically, the lower the stock goes, the higher the probability that you get screwed is, which is not your typical outcome.
Whereas in theory, the lower it goes, the better it is. Here’s a very real example of that’s not the case. Well, that’s potentially not the case. Whether or not the game theory makes sense to take it private, people can debate that, but it’s been an absolute disaster. It was driven by evaluation-first thinking and I think I probably ran past at least three yellow flags. So, why did I do it? Probably because I think good assets are a little bit rich. Was that a smart decision? Not even close
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