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Frontier Communications Drops The Bomb

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Business Quant


  • Frontier Communications reported its fourth quarter results yesterday.
  • While the results were largely in-line with the street's estimates, it's the forward looking guidance and dividend elimination that hurt the investors' sentiment.
  • Moody's could downgrade the stock this year as Frontier's EBITDA hasn't stabilised yet.

Frontier (FTR) just posted its fourth quarter results. While its revenue and adjusted EBITDA figures were largely in-line with the street’s estimates, its dismal net subscriber additions during Q4 and disappointing FY19 guidance left a bad taste in many FTR investors’ mouths. If that wasn’t enough, the company dropped a bomb on the investment community by completely slashing its dividends. Rather than beating around the bush any further, let’s delve deeper into its Q4 results to have a better understanding of its current state of affairs.

Letting it churn

Let me start by saying that Frontier recorded revenues of $2.21 billion for the fourth quarter, which was largely in-line with the street’s estimates. Its adjusted EBITDA for the period came in at $919 million which is almost the same as its mid-point guided figure of $920 million. Also, I had forecasted in my last article that its overall churn would improve to 1.95% during Q4. Well, the actual churn figure came in really close at 1.98% so I won’t call it a miss.

Its management highlighted in the conference call that their CTF FiOS operations, which was notoriously responsible for the bulk of the company’s subscriber losses over the past year, finally showed signs of stabilization. While I agree that everything discussed so far painted an optimistic picture about the company, there are also a few issues in its Q4 earnings report that raise a few red flags.

As the chart attached above would indicate, Frontier’s churn rate did improve. It’s a fact and not conjecture. However, an improvement in churn rate can’t singlehandedly turn around the fortunes of a troubled services business. Ideally, one would want the number of customers leaving a service to be less than the number of subscribers enrolling for the service, so that the overall subscriber base expands anyway.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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