High-Speed Broadband And Smart Home Trends Will Spark Expansion

Key Takeaways

• Accelerated broadband subscriber growth, pricing power, and robust digital trends are driving strong revenue potential, margin expansion, and improved cash flow conversion.
  
• Solid cash discipline and shifting customer base make the company an appealing acquisition target amid growing industry consolidation.
  
• Heavy dependence on broadband amid subscriber losses, competitive threats, high debt, and regional concentration heightens risk to revenue growth, margins, and long-term profitability.

Catalysts

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

• Analyst consensus highlights the greenfield fiber build's ability to drive incremental home passes and steady growth, but penetration rates in new markets have already outperformed original models and with a back-end loaded $60 to $70 million 2025 capex spend, WideOpenWest could unlock a much faster acceleration in both revenue and EBITDA via a step-change in subscriber additions.
  
• While analysts broadly recognize margin upside from video subscriber migration to YouTube TV, the company is experiencing record-high adjusted EBITDA margin-now above 51 percent-with much of its market still early in the broadband-first transition, so a sustained migration could deliver meaningfully higher margins and free cash flow conversion than consensus expects.
  
• The sharp 3.7 percent year-over-year ARPU growth signals substantial pricing power and product mix enhancement, which, combined with digital content consumption and device proliferation, could fuel high single-digit revenue growth as customers upgrade to premium broadband and smart home-ready services.
  
• The company's robust cash flow and capital discipline-evidenced by reduced capex and strong unlevered free cash flow-provides capacity to deleverage or opportunistically reinvest, improving earnings quality and positioning WOW! as an increasingly attractive strategic acquisition target as industry consolidation intensifies.
  
• The expansion of remote work, e-learning, and telemedicine is expanding the market of high-value, low-churn customers who depend on reliable, high-capacity internet, boosting lifetime customer value, reducing churn costs, and supporting outsized long-term margin and earnings growth.

WideOpenWest Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on WideOpenWest compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming WideOpenWest's revenue will decrease by 4.8% annually over the next 3 years.
• Even the bullish 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 10.0% in 3 years.
• If WideOpenWest's profit margin were to converge on the industry average, you could expect earnings to reach $53.2 million (and earnings per share of $0.63) by about August 2028, up from $-57.7 million 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 14.5x on those 2028 earnings, up from -4.6x today. This future PE is lower than the current PE for the US Media industry at 20.7x.
• Analysts expect the number of shares outstanding to grow by 0.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

WideOpenWest Future Earnings Per Share Growth

Risks

• Acceleration of cord-cutting continues to drive steep declines in traditional video subscribers, as exemplified by a 38 percent year-over-year drop, eroding a major legacy revenue stream and increasing reliance on broadband revenue for overall top-line growth.
  
• The company reported a year-over-year decrease in high-speed data revenue and continued negative net subscriber adds, with a total loss of 4,500 HSD subscribers in the quarter, putting sustained pressure on total revenue growth as market competition intensifies.
  
• WideOpenWest remains heavily dependent on residential broadband while facing increasing competition from both established providers and new entrants leveraging 5G and fixed wireless alternatives, increasing the risk of customer churn and compressing average revenue per user in the long term.
  
• Ongoing high levels of capital expenditure to fund network upgrades and greenfield expansions, combined with $1.03 billion in outstanding debt and a 3.4 times leverage ratio, constrain free cash flow and may limit the company's ability to invest in future growth or return capital to shareholders, ultimately impacting net margins and earnings.
  
• Geographic concentration in select US markets makes the company more vulnerable to regional economic downturns and intensifies exposure to competitive and regulatory pressures, posing a risk to both revenue stability and long-term profitability.

Valuation

• The assumed bullish price target for WideOpenWest is $6.5, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of WideOpenWest'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 $6.5, and the most bearish reporting a price target of just $4.8.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $534.0 million, earnings will come to $53.2 million, and it would be trading on a PE ratio of 14.5x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $3.19, the bullish analyst price target of $6.5 is 50.9% 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.