Except for one inconvenient fact: NTLS also has $500m in debt, so the real cost is 3x the market cap, plus a premium to make the deal happen. Oh and DISH has $13 billion in debt and Sprint has $33 billion in debt so neither is exactly operating from a position of financial strength nor is interested in adding to their considerable debt load.
Sprint will re-up with NTLS this summer and everything will be kum-ba-yah. Until then, I'm happy to be making 14% on my investment. You probably are too.
Actually, the Sprint business is not only 35% of NTLS's revenues, its also higher-margin than the rest precisely because it rides on top of the existing network. If it went away, it wouldn't take a proportional amount of fixed expense with it.
One could argue that with the stock going from $20 down to $12 that the (unlikely) loss of all the Sprint business is baked into the price. But a headline saying they'd lost the business or it was renewed at substantially worse terms to NTLS would still drop the stock, at least until one could figure out whether the dividend would still be covered by cash flow.
But I digress: I agree with you Nip that the likely outcome is a re-up of the contract at reasonable terms. S doesn't need to literally get bogged down in the jungle (remote Appalachia) when they can pay lawyers to strike another wholesale deal. I don't, however, think S buying NTLS is in the cards. They get nothing by buying that they can't get by leasing and they preserve capital or leverage for whatever Sprint CEO Son wants to do when he starts waging war on VZ and T.
...today's specific action is because it's trading ex-dividend today. People are thrilled to "capture" that juicy dividend and are heading for the hills, understandably.
Sprint is = 35% of NTLS's revenue and the contract is up on July 31, 2015. As of January 31, 2014 (i.e., 18 months prior), Sprint now has the right to begin over-building the same geographic area with their own physical wholly-owned network. But none of the analysts covering NTLS have reported any activity, and they'd have to get started pretty soon to have adequate coverage by the time the contract ends. So we're all in this kind of limbo until either...a) they extend the contract or b) Sprint shows its hand and starts building towers and base stations and trenches for backhaul.
I suspect we'll probably know what's going on by mid-summer. My prediction is that Sprint re-ups with NTLS, but at terms slightly more favorable to Sprint. Not that it will be a money-loser for NTLS - far from it - just a better deal.
If they re-up, then the stock is hugely cheap, especially since the dividend will be secure. By the way, did anyone read that story in the WSJ this weekend about how even though we're supposed to be in a telecom price war, the average phone bill keeps going up for all the majors (VZ, T, S, TMUS)? People are addicted to these devices! They're the new cigarettes.
Gov_Brig: I actually agree with you on this - I think a larger consulting or business services firm that acquired EGOV would be very likely to screw things up for exactly the reasons you state. Whether because of pressure to extract maximum profitability in general, or to meet ROI hurdles for a debt-funded acquisition of EGOV, states would probably begin falling away.
But that doesn't mean an Accenture or PWC wouldn't try in the first place.
Here's the CEO on the quarter:
"For Q4 and for all of 2013, we reached new record benchmarks across our business including sales pipeline, bookings, implementations and revenue. In Q4, we achieved record bookings which represents 40% year over year growth in estimated annual contact value." Also, Cash Flow from Operations was up 21% year-over-year. The changeover to subscription model pricing masks a really powerful business model. The bookings growth is there, the cash flow is there...it's all there.
If it goes on sale, institutions eager to get into Software-as-a-Service companies without having to pay Zillow and Concur multiples will hoover up shares of SAAS.
Can anyone save me some trouble rooting through EDGAR and post a link here to Pro Forma financial docs for Sizmek? The recent 10-Qs separate the TV from the On-line biz but only in terms of Revenue and Cost of Goods Sold. Sizmek's web site is actually pretty good, but I'm surprised that there are no financial docs for the company post -spinoff.
How do you know they have no debt? The press release only talks about the $60m in cash and a "solid balance sheet." Doesn't necessarily mean no debt. Some of the docs I found on EDGAR hint that the debt was paid off before the $3 dividend but it's not clear (or intentionally vague).
I don't mind short-sellers getting on message boards to explain why they're short. Even though I'm long, I value thoughtful reasoning to justify being negative, especially when I'm positive/long. I don't want to be in an echo chamber with voices that sound like mine.
In the case of EGOV, the strongest negative case is simply that for a company growing revenue and earnings at about 10-12% annually, the stock has a premium valuation. I think it's worth the premium because of the cash flow and the predictability of the revenue and, in recent years, the dividends plus the price appreciation in one stock.
Plus EGOV would be hugely accretive to the earnings of another, larger company that wanted to buy it for not only the business but also the relationships EGOV has built with 30 or so states.
Good luck to all.
I think it's more accurate to say I'm "pro-business model" with EGOV. Management is by no means perfect here. For example, they've been saying more Federal business is close for about four years now and still it's only the driver registry. What's up with that?
But the business model is so strong (consistent cash flow, re-usable applications when they win new states, nine of the 10 most populous states out there to win...) that it makes up for management's shortcomings.
By the way, what did you "suspect" me of? If it was being long the stock, you're right: I've owned EGOV steadily for five years.
EPS was in-line with expectations, when you take into account the one-time legal and tax rate effects. And Q4 revenue was actually slightly ahead of expectations when you add back the one-time $2.5m in legal.
Initial 2014 guidance was conservative, as expected. But the 2014 EPS mid-point still assumes 10% growth, which is pretty much what EGOV has been doing for years. Plus it's conservative because it doesn't take into account Louisiana (won but not yet officially in the guidance) or any new Federal stuff or new states.
Plus did anybody notice that Cash Flow from Operations grew 35% year-over-year in Q4? Sounds like a future dividend to me.
Bottom line: EGOV's Q4 earnings reports have been like this for years: they start out conservative and then meet or beat the easy hurdles all year. Then pay a dividend. I just love this business model.
The 2014 revenue guidance is GDOT's initial guidance....and it's ahead of the Street consensus! Don't blame the company because the analysts were way out in front of management's own EPS guidance. GDOT just did $1.15 in non-GAAP EPS and their guiding for $1.25 next year. It says right in the earnings release headline: "Forecasts Accelerated Growth in 2014." Oh and don't forget they just did 19% year-over-year growth in operating cash flow.
The facts seem pretty clear: GDOT is executing on a great opportunity.