noslappz: I don't know that you are particularly interested, but I covered my short sales of 3-31-05.
I didn't want the declines attributable to the markets three day swan dive to evaporate on me. I covered most of them on Monday and the rest Tuesday morning. Overall, I made about 4% based on the sale price and all four stocks sold short were profitable.
The thing that pleased me most is that the gain on CVC was about 6% while the others was about 3% or 4%.
If they go back to my original short sale prices, I may try for a double dip.
Did you see that CVC raised its bid for Adelphia to $17.1 billion? If you are playing in fantasyland, why not think big? What a joke!
This will be my last message re CVC. I don't think there is any way I can convince you of anything.
However, you missed the point in my last message where I mentioned AMZN and CSCO. I did not intend to make any reference to the true value of those stocks or their businesses. I was only trying to demonstrate that markets fluctuate wildly at times.
Perhaps I should have just used the stock of CVC. Around the time of the internet boom CVC was trading over $80 per share. Before the announcement it was trading in the mid twenties. My point was and still is that markets fluctuate and are not always rational.
In my opinion this would also apply to the market value of a "subscriber". As you stated, at one time they were valued at $1000 and now something over $4,000. I see no reason why the value can not go back to $1,000 or even zero. In CVC's bid, CVC is setting the price, and they are not a dis-interested party, so that may not be the true intrinsic value of a subscriber. In addition the very change in the price of CVC's stock over a relatively short period of time implies that stock investors had reduced what they were willing to pay "per subscriber" for CVC.
Finally, how much would you pay per subscriber if many years worth of cable service proved to you that you were unable to make any net income from that subscriber. Would you be satisfied with the idea that you might make some money someday?
I still say that CVC is a debt laden piece of junk with no future, run by a bunch of idiots that will end up like Salton. Time will till. I am patient.
pm, a comparison of valuations among CVC, CSCO and AMZN is invalid.
CVC is a much like a utility. Lots or regular, dependable recurring revenue and some growth. And growth can come from unregulated activities, which has occurred.
The other two -- in their headiest days -- had little revenue and uncertain futures. AMZN sold only books and realized that wasn't enough. Now it sells everything and the valuations are somewhat rational.
As for the reality of "depreciation", well, it's nothing but an accounting convention.
Would businesses fail if not allowed to reduce results by some figure derived by dividing the cost of an asset by some arbitrary number of years? Or according to some other arbitrary practice? No.
As I've mentioned, all the important factors are accounted for when a company subtracts all its cash expenses from its top line. And when a company borrows to buy something, the interest expense shows on the income statement.
In fact, it's pretty clear the existence of depreciation increases the prices of many assets. Real estate is often purchased at prices that are uneconomical until depreciation is taken into account, enabling the investor to turn a profit through a tax advantage. Just like CVC.
Whether CVC is a Ponzi scheme has nothing to do with depreciation. I've know of no Ponzi scheme that included depreciation in its accounting. They function on a totally cash basis.
As far as cable system upgrades go, spending to improve the system wouldn't end if an accounting gimmick were ended. Accounting rules change all the time and businesses rarely fail as a result.
You're caught up in the belief that depreciation must always exist because it has existed for as long as you can remember. But it's just a convention that was introduced because it was a good idea to those who sponsored it.
Just like mortgage interest deductions -- another useless tax gambit. Houses cost more because mortgage interest is deductible. Who benefits from that? The need to stimulate home ownership was the driving force behind the deduction. Well, it worked. Now it's unnecessary. But woe to the politician who tells people they're paying more because of it.
The figures you are quoting for subscriber "value" are "market" figures. In other words, what buyers and sellers are willing to give or receive for something. Now whether a subscriber is worth $0 or $5,000 depends on how correct the "market" is. And guess what, the market fluctuates. At their peaks both CSCO and AMZN were about $100 per share and now they are about $20 and $35 per share respectively. I see no reason why the "value of a subscriber" should not go to $0 if the company serving that subscriber can not make any money on that subscriber. Now CVC may be stupider and more inefficient and they may take more management perks than other cable companies, but if you make no income from your subscribers, then the subscribers have no value.
Now then, will you quit already with those statements that depreciation is not an expense. CVC in its latest ploy is saying that they will need to make a great deal of capital expenditures to keep up with Verizon to remain in the game. These expenditures are going to increase their expenses and their net losses. The management is afraid that if the public sees the amount of losses they will be reporting in the future that they will be forced out of their positions even if they do have voting control.
This manic conviction you have that depreciation is not an expense is the basic fallacy that the cable business is based on. Many years ago, the industry told the investing world that they had to spend a lot of money to build their systems and when those costs had been depreciated the industry would be rolling in cash forevermore. Well it didn't work out that way. Every few years the technology changes and expensive upgrades are required. But the industry always sings the con mans tune to Wall Street. "We just need a little more time, and, oh yes, we need to borrow some more money." Open your mind to the possibility that this is just another Ponzi scheme, because it is.
Would you consider informing the accounting industry that depreciation is not an expense? I think they would like to know that. Then we could treat it like employee stock options. It would be easier for everybody and cut down on the paper work. I don't think rent or fuel should be an expense either!
pmlljl, you wrote:
"What difference does it make how much you value each subscriber for if you don't make any net income per subscriber?"
Plenty. As I've pointed out, no company needs to earn "net income" as long as it's paying all its bills.
I once worked for a small cable company that was acquired by Cablevision in 1983. The price was $1,000 per subscriber, an amount that seemed astoundingly high at that time. Looks pretty cheap today.
But clearly the going-private gambit will leave the Dolans with the good parts of the company and stick the public with the weak parts.
Because I am not much of a sports fan, I would not want to own or subscribe to a sports-oriented media venue. Aside from my lack of interest in paying for the sports product, I also think the economics of sports are approaching a limit. The overnight demise of hockey shows the fragility of the fan base and how easily a season's worth of revenue can disappear.
While other sports enjoy a more dependable following and are more likely to survive a player strike, the media venue caught in the middle between labor and management might not fare as well. Thus, the cast-off parts of Cablevision hold no appeal.
By the way, that accumulated deficit of $3.5 billion that you mentioned, includes the deductions for depreciation, which is, as you know, not a cash expense. So how much real money has the company actually lost over the years? My off-the-cuff estimate is roughly $0.
Meanwhile, over the life of the company, it's Enterprise Value has climbed. In other words, some positive results have been achieved, but the leverage necessary to get the company to this point has put equity holders at considerable risk.
Even Adelphia was sold for a pretty high per-subscriber figure. And that's after the Rigas family was convicted of stealing from the company.
Well I hope they do it. If they do, as usual, it will be with somebody elses money. Merrill Lynch and Bank of America will be happy to raise the money for FEES. I will bet that it won't be their money at risk.
I nearly died laughing when I read excerpts from Cablevisions letter proposing the deal. I quote, "not constrained by the public markets tendency to focus on the short term results...will better enable the cable company to meet its competitive challenges." This company has been losing money for well over 20 years and has an accumulated deficit of $3,445,000,000. Would they have been a better company if the deficit was $20 billion over sixty years?
You are correct to point out the cost per subscriber premium. But it is worse than that. When a company or an industry can not meet the standard metrics (net income for example) they have to come up with a new metric to confuse investors. Value per subscriber is similar to "page views" or "mouse clicks" used during the internet bubble and we know how that turned out. What difference does it make how much you value each subscriber for if you don't make any net income per subscriber?
Finally, the remaining public company "Rainbow Media will most likely continue to lose the public's money. Would you like to own a piece of the Knicks or the Rangers? Will they ever play professional hockey again
I covered my CVC short some time ago. I made money. The Dolans are for the most part unpredictable, however, I think it is safe to say that they will NEVER pay a dividend to their shareholders. Unlike NPK!
pmlljl, it looks as though the Dolans want to relieve Cablevision stockholders of the burden and risk of holding the company's stock.
While I must admit that valuing each Cablevision subscriber at nearly $4,400 is putting a premium on each customer, the number isn't shockingly above the prices paid in other deals.
Maybe the Dolan's are delusional, but they seem to have found bankers who are willing to participate in the delusion based on the willingness of lenders to finance the going-private transaction.
I did not intend to address what happens In bankruptcy or thereafter. My concern is making money on the stocks I might own and the risk of losing money on them.
I have been discussing Salton and Cablevision Systems as almost equally bad investments because they each have a lot of debt, perpetually lose money and , in my opinion, have BAD management that cares about themselves and not their shareholders.
It is possible to make money on companies that come out of bankruptcy. Frequently, however, they come out of bankruptcy under the same incompetent management that steered them into it. I do not want to participate in that. There is nothing honorable, IMHO, about shafting your creditors and letting them try to recover as shareholders.
In other words, I would prefer to be a patient investor in a company with smart, honest people running it who don't use enormous debt.
Like NPK. Other posters here sometimes disagree about my opinion of NPK's management, but I like it much better than Salton or Cablevision.
pm, the sarcasm was evident enough. What wasn't evident was the knowledge that these situations often do not go the way YOU think they will.
MCI comes to mind. Your logic seems to based on your own form of common sense rather than on marketplace realities, such as how bankruptcy really works.
In bankruptcy, stockholders generally get screwed, but that's hardly the end of the story. Nor is it all that critical to a troubled company's future.
I was hoping someone would comment on today's news release. Starting in 2006 NPK stands to get 300 million in revenue from this defense contract over the next five years from a current base of about 160 million in total revenues for the last 12 months. I am excited by a 35+% increase in sales with a probable decent profit margin (ammunition).
I think we have a longterm winner.
biblioguy: You read my comment correctly. I was beginning to wonder if anybody else read this board. Anyway, I think I won't be arguing with no_slappz anymore. We're not on the same wavelength so we just can't agree. Thats OK, there is room in this world for many viewpoints. I have been successful using my way and I have no desire to change.
Looks like NPK is going to get some more business from Uncle Sam. As usual, the market is not going to wait and see how much they get or how profitable it is. I guess I will have to take my crystal ball in for service so I can see what today's buyers see that I don't.