Greenfield Fiber Rollout And YouTube TV Will Shape Future Prospects

Key Takeaways

• Strategic shifts to fiber and partnerships are expected to enhance net margins and drive future revenue growth through improved penetration rates and reduced churn.
  
• Effective CapEx management and increased funding will accelerate fiber expansion, bolstering earnings and offsetting declines from external factors.
  
• Strategic shifts and heavy debt pose risks to revenue and flexibility amid market challenges and competitive pressure from traditional and new providers.

Catalysts

Provides high-speed data, cable television, and digital telephony services to residential and business customers in the United States.

• The expansion in greenfield fiber markets and the involvement in new communities such as Brighton, Michigan, and Hernando Beach, Florida, are expected to drive significant future revenue growth as WOW! continues to pass more homes and improve penetration rates.
  
• The strategic shift away from traditional video platforms to partnerships like YouTube TV is anticipated to enhance net margins by reducing operational costs and customer churn.
  
• WOW! secured a $200 million super priority term loan with potential for an additional $175 million to support the greenfield project, which could lead to an accelerated fiber rollout, driving future earnings growth through increased customer base.
  
• Improvements in customer ARPU through upgrades to high-value services and pricing strategies are likely to positively impact revenue, counteracting the current declines driven by external factors like hurricanes.
  
• Continued advancements and strategic investments in fiber technology in both greenfield and edge-out markets, coupled with cost-effective CapEx management, are expected to bolster earnings and net margins in the long term.

WideOpenWest Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming WideOpenWest's revenue will decrease by 3.7% annually over the next 3 years.
• Analysts are not forecasting that WideOpenWest will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate WideOpenWest's profit margin will increase from -9.3% to the average US Media industry of 8.6% in 3 years.
• If WideOpenWest's profit margin were to converge on the industry average, you could expect earnings to reach $48.6 million (and earnings per share of $0.6) by about April 2028, up from $-58.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, up from -6.1x today. This future PE is greater than the current PE for the US Media industry at 13.7x.
• Analysts expect the number of shares outstanding to decline by 1.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.72%, as per the Simply Wall St company report.

WideOpenWest Future Earnings Per Share Growth

Risks

• High-speed data revenue decreased 3.5% year-over-year, which can signal challenges in maintaining revenue growth amid changing market dynamics and the impact of significant events like hurricanes. This could impact overall revenue adversely.
  
• Continued pressure on video and telephony revenues, which dropped 26.9% and 16.9% respectively, presents challenges in stabilizing or growing total revenue streams as the company transitions away from these services.
  
• The company's decision to offset high-speed data losses by shrinking its video platform and pushing customers to alternatives like YouTube TV could lead to further short-term revenue declines as this strategic shift is executed.
  
• The company faces significant competition from traditional cable companies and fixed wireless providers, which may affect customer acquisition and retention rates, thereby impacting future revenue trajectories.
  
• The heavy reliance on debt, with a leverage ratio at 3.5x and total outstanding debt of $1.02 billion, poses financial risk and could limit flexibility in future strategic investments, impacting net margins and earnings.

Valuation

• The analysts have a consensus price target of $6.15 for WideOpenWest based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.5, and the most bearish reporting a price target of just $4.8.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $563.1 million, earnings will come to $48.6 million, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 10.7%.
• Given the current share price of $4.23, the analyst price target of $6.15 is 31.2% higher.
• 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.