Contracting Broadband And Debt Will Constrain Performance Yet Spur Upturn

Key Takeaways

• Accelerating competition from alternative broadband providers, high leverage, and a shrinking subscriber base pose risks to revenue growth and long-term profitability.
  
• Operational efficiencies offset some challenges, but slow fiber upgrades and pressure on margins threaten reinvestment capacity and market retention.
  
• Declining legacy service demand, high leverage, and costly expansions are straining growth prospects amid competitive pressures and ongoing subscriber attrition.

Catalysts

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

• While WideOpenWest has demonstrated strong penetration rates and subscriber growth in new fiber-based greenfield markets, its overall broadband subscriber base is contracting, which could continue to pressure top-line revenue despite ongoing high-speed internet demand driven by remote work and connected home trends.
  
• Although the company has expanded its addressable market through greenfield and Edge-Out strategies, competition in both legacy and new markets remains intense, with alternatives like 5G and fixed wireless posing significant long-term risks to broadband ARPU and accelerating subscriber churn.
  
• Despite improved adjusted EBITDA margins supported by operational streamlining and a successful shift away from traditional video, the rapid decline in linear video subscribers and ongoing pricing pressures could weigh on net margins and limit future earnings growth, especially as new technologies disrupt the market.
  
• While operational efficiency initiatives and capital-efficient fiber builds have contributed to better free cash flow and reduced some costs, WideOpenWest remains highly leveraged, with over one billion dollars in total debt, which may constrict future reinvestment and increase vulnerability to rising interest rates or localized economic downturns.
  
• Even with the secular trend toward digitalization and more connected devices in the home supporting higher-margin broadband services, the risk from low-cost, high-speed broadband entrants and the slow pace of fiber upgrades relative to larger peers may erode long-term profitability and challenge the company's ability to sustainably increase ARPU or retain market share.

WideOpenWest Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on WideOpenWest compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming WideOpenWest's revenue will decrease by 4.9% annually over the next 3 years.
• The bearish 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 $53.1 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 bearish analyst cohort, the company would need to trade at a PE ratio of 10.8x 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

• High-speed data revenue declined 0.8 percent year over year, and the company lost 4500 HSD subscribers in the quarter, indicating potential long-term challenges maintaining subscriber growth and revenue resilience.
  
• Total revenue dropped 7.1 percent compared to the prior year, mainly due to sharp declines in video and telephony services, underscoring the persistent risks from cord-cutting trends and waning demand for legacy offerings, which can continue to erode top-line results.
  
• Leverage remains elevated with outstanding debt of 1.03 billion dollars and a leverage ratio of 3.4 times, which could limit financial flexibility for network investments, increase sensitivity to rising interest rates, and ultimately pressure net margins and earnings.
  
• Ongoing high capital expenditures required for fiber and market expansion (expected between 60 and 70 million dollars for greenfields in 2025) strain free cash flow generation, and construction delays due to factors like weather intensify timing risks for revenue realization from new builds.
  
• Competitive intensity persists in both legacy and new markets, with incremental churn triggered by video rate increases and potential risks from emerging low-cost broadband entrants, which can amplify price pressure and volatility in both revenue and profitability.

Valuation

• The assumed bearish price target for WideOpenWest is $4.8, which represents the lowest 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 more bearish 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 bearish analysts, you'd need to believe that by 2028, revenues will be $532.8 million, earnings will come to $53.1 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $3.19, the bearish analyst price target of $4.8 is 33.5% 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.