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Ted Barac

 
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  • Why Twitter Investors Were Just Duped [View article]
    "Twitter's monthly active user base is one-fifth the size of Facebook's (NASDAQ:FB). And its revenue per user is 50% lower.

    Yet Twitter trades at a 44% higher price-to-sales (P/S) ratio."

    Tiny companies with small user/customer bases can (justifiably) have high P/S ratios and vice-versa (large companies can have low P/S ratios) as the metric is largely correlated with expected sales growth and isn't meant to be (and shouldn't be) correlated to the absolute size of the existing customer base.

    The "S" of P/S ratio already captures both the lower size of Twitter's user base and their lower revenue per user.

    Since P/S more correlates with expected revenue growth rates, and not absolute size/user-base, consider that Twitter's expected revenue growth for '14 and '15 is roughly double that of FB (per analyst estimates, for what it's worth). I think that's what's really more relevant when looking at the P/S ratio.
    Aug 6 10:32 AM | 1 Like Like |Link to Comment
  • Why We Love Premium Bonds And You Should Too [View article]
    Thanks for the response, Larry. I agree that bond yields and risk are very highly correlated and that's great if you're finding bonds where these supply/demand issues are causing price/yield discrepancies to your advantage.

    Thanks, again, for the article and dialogue.
    Jun 26 03:13 PM | Likes Like |Link to Comment
  • Why We Love Premium Bonds And You Should Too [View article]
    Thanks for the article. Do you not find that these factors largely net out?

    For example, when you buy at a discount you may have to pay taxes on the discount (a negative), but you are also paying taxes on a lower coupon/interest payment (a positive). The reverse being true when you buy at a premium (paying taxes on a higher coupon, but being able to write-off the premium amortization).

    In other words, shouldn't the net tax obligation on a similar yielding bond bought at either a discount or premium be the same with the premium/discount offsets just equalizing things -- given the different coupon payments for similar yielding instruments -- from a tax perspective? Or is their something with the different tax rates that makes buying a premium bond advantageous from a tax perspective?

    Also, for premium bonds isn't the duration going to be priced in the same as it would be for any other lower duration bond (i.e. you will get paid commensurately less -- as with other lower duration bonds -- given the upward slope of the yield curve) and isn't duration going to typically be driven more by the maturity date than the premium/discount factors (i.e. can't you just as easily, and at the same yield, buy a shorter maturity bond if you want the lower duration)?

    In other words, is there something uniquely beneficial to getting the lower duration via the purchase of a premium bond (versus just buying an identical bond with a shorter maturity)?

    Finally, don't forget that credit risk is higher for premium bonds (versus an identical bond selling at a discount) because loss-given-default recovery rates will be lower -- as bondholders are paid a percentage of par value in recovery, irrespective of how much they paid for their bond. I think that this is a very important consideration, particularly as you go lower down the credit spectrum.
    Jun 26 10:03 AM | 4 Likes Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    Thanks for the follow up, dsc20601. Yes, both AT&T and Verizon have economies of scale with respect to roaming, etc. which need to be considered and, as discussed in the article, Verizon has yet to fully enter the retail market in Alaska. These are well know issues which have contributed to the sell-off in the shares -- but very relevant and real risks nonetheless.

    The pension issue is not really that material (less than a $4mn deficit at YE 2013).

    Thanks, again, for the dialogue.
    Jun 25 11:17 PM | 2 Likes Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    Thanks for the comment, dsc20601. I always appreciate hearing the bearish view on a position that I hold.

    A few quick points:

    -- The loss of Verizon's roaming revenues is already reflected in the current financials and any legacy roaming revenues that remain are now part of AWN.
    -- ALSK, with their nationwide plans, also doesn't charge roaming fees to the lower 48 states.
    -- Voice wireline (which is the wireline segment that is really in secular decline) comprises only about 12% of ALSK's revenues. Broadband is growing nicely and is a much larger segment for ALSK.
    -- I don't share your belief that 5G will eliminate the need for landlines (i.e. no one will have DSL internet or cable internet connections), but long-term technological risks are certainly a concern for any telco player.
    -- The union costs associated with AWN would already be factored in when consideration was made for the economics of the AWN-deal and the resultant ownership shares and profit sharing considerations.
    -- Not sure your point about the financial restatement (are you saying that management isn't to be trusted?). Please elaborate.

    Where I agree with you is in the fact that Verizon's entry into the Alaskan retail market will impact their wireless business and the competition in that market is high and getting worse. While they now have less exposure to wireless and this threat (because of the AWN deal), their resultant higher concentration on the wireline side of the business definitely present concerns of its own. I also agree that refinancing risks are a valid concern.

    There's no doubt that there are a lot of financial and competitive risks with ALSK. The question is whether or not those risks are adequately incorporated into the share price and whether or not risk/reward for the shares is attractive at current levels, after the massive sell-off over the past year (and that's where we obviously disagree).
    Jun 25 09:37 AM | 1 Like Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    Hi packer, Yes, I've looked at GNCMA, but mainly as due-diligence on the competition. ALSK's higher leverage/gearing (relative to GNCMA) -- and the fact that I think that they can manage the leverage -- is something that's actually appealing to me, as I explained in the article. Undoubtedly; however, GNCMA is the less risky of the two names.
    Jun 23 10:28 AM | Likes Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    ** isn't particularly high, so I'm not counting on any large reductions...**
    Jun 22 05:25 PM | Likes Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    The preferred payments go from $50mn (in years 1 and 2) to $45mn (in years three and four). That's the difference between the $190mn and the $200mn that you calculated.

    Again, these payments are incorporated in the FCF, so if they hit the $20mn in FCF guidance this year and do the same next, it would be $40mn in debt reduction (rather than $100mn).

    This a highly capital intensive industry (requiring a substantial amount just for maintenance capex), so I don't see capex levels dropping substantially below the $40mn that they guided for this year. Capex guidance as a percentage of revenue also isn't particularly low, so I'm not counting on any large reductions in that area.
    Jun 22 04:32 PM | 1 Like Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    Thanks for the comment mt3diver,

    I think that looking at the previous share-price declines is backward-looking and I believe it's those share price declines that have made ALSK's valuation attractive today. I also believe that the prohibition of mutual and large hedge funds owning the stock, as you mentioned, is a factor that can help create/allow for a value opportunity like this.

    Also, the fact that Alaska is a small market only means that the valuations for companies in the state should be commensurate with the small size (and they are). You're right that an acquisition from a mobile layer is probably out (given the AWN structure), but there could be more fixed-line focused operators that would like to have ALSK.

    It could be a nice bolt-on acquisition that would require little integration and would add a nice big state (geographically) to their operational coverage map. That said, I certainly wouldn't count on an acquisition or buy just for that reason.

    I also agree that caution is warranted here and thanks, again, for your comment.
    Jun 22 03:58 PM | 1 Like Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    Thanks, chazsf. Yes, there's definitely some very good summary information in there.
    Jun 22 10:06 AM | Likes Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    Great question, rebowley.

    The AWN agreement is a bit confusing. Remember that ALSK now owns 33% of AWN and are entitled to distributions as part of their equity ownership. Importantly, the $190mn in preferred distributions over the first four years are not in addition to that, but rather guarantees (subject to contingencies) for amounts that are probably higher than what they would likely receive by virtue of their ownership interest alone.

    For example, they received $12.5mn in Q1, whereas their equity share from AWN only about $8.5mn. The $8.5mn was booked on the CF statement as a "cash distribution from equity method investments" whereas the additional $4mn seems to be included in "return of capital from equity investment".

    Very importantly, note that the full $12.5mn gets included in adjusted EBITDA and these distributions are already incorporated into the $90mn guidance for 2014 adjusted EBITDA and $20mn in FCF. So, you can't double-count the $190mn as additional payments beyond what is already forecasted and incorporated into the EBITDA and cash flow numbers (unfortunately).

    Also, these are regular quarterly payments and there are some contingencies to these payments, so not sure how much can be booked as an asset/receivable in advance. I believe that's why you don't see a huge receivable number on the balance sheet.
    Jun 22 09:10 AM | Likes Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    Thanks for the comment, fliper. When did your concern with respect to broadband growth arise? I ask because recent trends in that area are very strong.

    With respect to your last point, I think that as long than they are paying down debt, value is accreting to shareholders -- through those debt reductions, which afford a higher market cap. (all other things being equal). Of course, if they do ultimately go bankrupt, that value will obviously then be gone.
    Jun 21 08:26 PM | 2 Likes Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    Thanks for the comment, Leom.

    Yes, I expect that they will refinance. These type of bank term loans, for high-yield/leveraged companies, aren't typically expected to be repaid at maturity. As long as financials don't implode (such that it becomes obvious that they will be unable to service their debt obligations over the longer-term) they are typically able to roll them forward or otherwise refinance prior to maturity.

    Assuming ALSK can continue to generate sufficient cash flow meet their interest payments, it's generally in the banks interest to refinance and keep them as performing loans on their books. As mentioned before, though, refinancing risk is a real consideration here.
    Jun 21 08:15 PM | 2 Likes Like |Link to Comment
  • Alaska Communications: High Potential Rewards Justify The Risks [View article]
    Thanks for the comment, bently.

    It seems that our investment philosophies differ. I view trailing indicators showing that there has been little positive interest accruing in the marketplace and no analysts behind a stock as characteristics that can make a stock attractive (oversold). That's essentially the difference between momentum and contrarian investing.
    Jun 21 11:46 AM | 4 Likes Like |Link to Comment
  • This Time It Is Different - Americans Are More Pessimistic [View article]
    Excellent article, James. Thanks.
    Mar 7 04:22 PM | 6 Likes Like |Link to Comment
COMMENTS STATS
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