Broadband And Fiber Advances Will Drive Expansion Despite Risks

Key Takeaways

• Acquisition and integration efforts are expected to create efficiency gains, stronger pricing power, and durable margin expansion for Liberty Broadband.
  
• Strategic rural expansion, fiber investments, and disciplined capital allocation position the company for sustainable growth and enhanced earnings per share.
  
• Heavy reliance on core holdings, high leverage, industry headwinds, regulatory risks, and elevated capital spending threaten future earnings, cash flow, and growth prospects.

Catalysts

Engages in a range of communications businesses in the United States.

• While analyst consensus anticipates the Charter acquisition of Liberty Broadband will result in moderate operational synergies and NAV uplift, the integration could drive sweeping cost savings, create a dominant broadband platform with expanded pricing power, and trigger an immediate upward re-rating of Liberty's net asset value post-deal closure. This could have an outsized impact on net margins and NAV per share.
  
• Analysts broadly agree that Charter's rural broadband expansion will incrementally raise subscriber and revenue growth, but the network buildout, supported by federal and state grants, may in fact capture a far larger share of the currently unserved market and become the primary high-speed provider in these areas, establishing multi-year double-digit revenue growth and enhanced operating leverage.
  
• The shift toward broadband as the essential connectivity product, combined with declining pay-TV economics, strongly favors Liberty Broadband's core assets, positioning the company for higher average revenue per user and durable margin expansion as consumers increasingly demand data-centric bundles.
  
• Liberty's focus on precision capital allocation, including aggressive deleveraging funded by tax-exempt Charter share sales and opportunistic share repurchases, sets the stage for accelerated per-share earnings growth and capital efficiency well above market expectations.
  
• The transformative completion of major fiber connectivity milestones in previously underserved territories, such as Western Alaska, opens up untapped enterprise and public sector contracts, driving a sustainable runway for topline growth and translating infrastructure investments into robust, high-margin revenue streams in the coming years.

Liberty Broadband Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Liberty Broadband compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Liberty Broadband's revenue will grow by 2.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 103.0% today to 66.5% in 3 years time.
• The bullish analysts expect earnings to reach $759.8 million (and earnings per share of $5.55) by about September 2028, down from $1.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 27.2x on those 2028 earnings, up from 8.0x today. This future PE is greater than the current PE for the US Media industry at 20.3x.
• Analysts expect the number of shares outstanding to grow by 0.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.37%, as per the Simply Wall St company report.

Liberty Broadband Future Earnings Per Share Growth

Risks

• Liberty Broadband remains heavily exposed to risks at Charter Communications, its core holding, so any long-term erosion in Charter's cable revenue from cord-cutting, direct-to-consumer streaming adoption, or increased broadband competition could directly reduce Liberty Broadband's future earnings and share value.
  
• Persistently high capital spending at GCI-above historical levels-required to expand and maintain network infrastructure, coupled with the anticipated increase in ongoing fiber and last-mile investments, could suppress free cash flow and lower operating margins in the coming years.
  
• The company's significant leverage at both the Liberty Broadband and GCI levels exposes it to heightened risk in periods of rising interest rates or tighter credit markets, which could substantially increase interest expense and decrease net margins, while also limiting the ability to pursue growth initiatives.
  
• Structural industry headwinds including competition from Starlink and other fixed wireless or satellite providers in Alaska, as well as nationwide fiber expansion and maturing broadband markets, may further increase subscriber churn and erode top-line revenue growth for both GCI and Charter over the long term.
  
• Potential regulatory changes, such as the outcome of the Supreme Court case challenging the constitutionality of the Universal Service Fund or greater scrutiny on cable and broadband providers, could disrupt subsidy flows and/or impose new pricing constraints, which would negatively affect revenue and cash generation across portfolio companies.

Valuation

• The assumed bullish price target for Liberty Broadband is $115.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Liberty Broadband's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $115.0, and the most bearish reporting a price target of just $83.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $759.8 million, and it would be trading on a PE ratio of 27.2x, assuming you use a discount rate of 7.4%.
• Given the current share price of $60.46, the bullish analyst price target of $115.0 is 47.4% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.