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Can CenturyLink Transform Into A Technology Company Generating Revenue Opportunities?

Apr. 08, 2019 6:15 PM ETLumen Technologies, Inc. (LUMN)98 Comments
David Klein profile picture
David Klein


  • Digital transformation continues marching on producing double-digit CAGR for data, increasing demand for cybersecurity.
  • Edge computing will be critical in a world of ever-growing IoT and the rollout of 5G.
  • CenturyLink has the tools to transformation from a telecom company to a technology company.

The focus of this article is how CenturyLink (CTL) may transform into a technology company.

Data has been increasing at double-digit CAGR for many years and will continue unabated for the foreseeable future according to "The Cisco VNI forecast"; however, there has been little benefit to revenue growth which brings us to CenturyLink. The telecom model of past is not the road to the future. Jeff Storey - CEO - made these comments on the last conference call:

we've initiated the fundamental transformation of CenturyLink from a telecom company to a technology company. … Telecom companies sell circuits; technology companies interface our capabilities directly within the applications of our customers

We've moved quickly away from non-core less profitable products, and customer contracts, and instead focused more on product development particularly around cloud, security, hybrid networking, and edge computing for our enterprise customers.

Next on the horizon is edge computing. Again, our fiber assets are key and we are investing to couple those assets with our widely distributed central offices, data centers, and the other points of presence we operate to distribute computing resources at the very edge of the network.

If you think about edge computing, we think we can get our customers computing resources very, very close to the edge of the network from a latency perspective by utilizing all of our facilities. So we'll look at the products and services and figure out continue to work on how do we integrate those services into our customers businesses. I mentioned that we're a technology company not a telecom company.

Moving quickly away from non-core less profitable products hurts the top line in the short term until the more profitable services gain traction to replace lost revenue. I noted in my last article, revenue visibility consisted of three pillars:

This article was written by

David Klein profile picture
I've been investing full time for over 20 years. I use a proprietary model based on a modified Graham, DCF and PE analysis. Results can be viewed at our website (https://www.iiex.club/). As a result of past investment decisions I was able to turn my attention to full time investing and research which has always been my passion. This site and my website are the best forums to post ideas and research. I have a degree in engineering, however I spent most of my career in management and very little doing engineering calculations. View the current focus stocks at https://www.iiex.club/focus-stock

Analyst’s Disclosure: I am/we are long CTL. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (98)

Nope. pile of garbage going to 8
GetaClueorgetglue profile picture
Its not going to $8 and its not going anywhere above $12 this year.
I imagine the stock does nothing as long as it has a $1 divy. Maybe in 10 years it will be $14. Good luck
Wanna try again? cause down A TEARS DIVIDEND IN 1 DAY does not look like go anywhere.
Justin Wiedeman profile picture
Tears of joy! Buy, buy and buy!
Will the White House and other conglomerates push towards 5G fast enough requiring CTLs services or will another large player build out the infrastructure themselves. I think CTL currently is a top player for companies to utilize their infrastructure. Waiting for the White House to say something about rural America again so institutions buy.
David Klein profile picture
Interesting comments in the letter to shareholders:
We are also always actively working to fully maximize the value of our asset portfolio. ...pursuing opportunities to unlock value by selling all or parts of non-core lines of business. ...we will remain active in our efforts to invest, acquire and, when it creates additional value for shareholders, divest assets that may be more valuable to others than as part of our portfolio.
Reading some the comments it's very obvious that there are lots of frustrated holders that must have bought at higher prices before the divvy cut.
All that high-tech computer savvy, processing power, cutting edge prospects, potential for growth - but they can't figure out how to keep their books clean, and this after two dividend cuts that they assured the shareholders wouldn't happen. I'd say their main purpose now is to serve as a warning to investors.
dying dog that will cut divvy again
Dividend Dojo profile picture
Just read the CTL proposals for annual meeting
Management wants permission to increase the number of authorized shares.....heck no!
Justin Wiedeman profile picture
ir.centurylink.com/... Page 23. I tend to agree with you. The problem is the context and background after all of the troubles since the beginning of the year and a lack of trust in the BOD. If the stock price was $28 this would pass without an issue, but at $12 and change they are crazy to put this on the agenda. It indicates they are tone deaf. I want to see a nominal buy-back program to finance the Executive Comp Plan.
maps666 profile picture
They have shown no respect for shareholders or belief in their own company. Fickle with the market wind.

Best to wait till there is a management change on CTL.
Justin Wiedeman profile picture
Sentiment is extremely bearish and fundamentals as measured by free cash flow per share are fantastic with great opportunities going forward - that means Buy.
Great article on their transformation... This is a very misunderstood stock most investors don;t have a clue. Long CTL
Actionable Conclusion profile picture
Hard to argue.

There are some folks that have been pumping this stock for years when it was 2x and even 3x times the current price. Clueless indeed.
scramyall profile picture
@Actionable Conclusion - That was a different company from the one you own today. "Some folks" don't matter anymore.
David Klein profile picture
Here is a website aimed at business about transforming to the digital world, articles on SD-WAN, security, IT, cloud, etc., from CTL. @ https://www.netformation.com/
I posted only because there are some interesting articles for those that are interested in that stuff.
David Klein profile picture
I should have mentioned this one as well - www.centurylinkbrightideas.com/...
Century is the bottom feeder of the telecoms. Winning business by low bid.
I sold loosing. No future. Who would acquire them?
David, I have probably asked you this before but how is it that Zayo gets such a high valuation as compared to CTL?
David Klein profile picture
@Franklin1Pug I don't follow ZAYO but they do have a growing top line where CTL has a shrinking top line. The lack of visibility around CTL's top line is hurting the stock. If, like ZAYO, CTL were growing the top line the price would be far higher IMO. I've said on several forums revenue visibility is the elephant in the room and management needs to do a better job of addressing it which is non-existent today. That said I think ZAYO is overpriced. Their leverage ratio makes CTL's look low.

Their is a consortium possibly bidding to take over ZAYO so they don't see ZAYO as expensive as myself.

On another note most brush off the consumer billing lawsuit but I think it hurts the price, until we see which direction it's going. I'll bet many WIN investors brushed off the Windstream lawsuit and now we know how that worked out. Don't misunderstand me, I'm not saying the billing lawsuit will go anywhere but to dismiss it out of hand may be wishful thinking. Bottom line I think it does weigh on the stock along with revenue uncertainty.
David Klein profile picture
For those not familiar with my website here is an interactive model where you can enter your own inputs and see how it affects FCF, EPS leverage, Fair Value, etc.
David Klein profile picture
BTW here is a poll that is renewed after every earnings release. Feel free to add your sentiment by clicking the red link at the top of this page:
The tab "Summary" at the bottom graphs all previous results resulting in the trend direction.
Stay Long an Prosper profile picture
As some one who has worked for CTL,,,,,,, they have been trying for years to leverage new high margin products and services, tied to the above value props,,,even including Level 3 to develop network size, reach and margin spread. While the "story," sounds good,,,tastes great,,less filing,,all that,,,,the execution continues to look like pushing a rope up a hill. Lets see,,,, I'm a decision maker and I'm going to choose from T, Vz, Azure, AWS, Google,, IBM, Oracle or hundreds of niche players choice of cloud integration, network, security,,,,,or ......CTL. I hope that on-ramp to the cloud strategy works as I've been long 2k shares awhile,,,
Does CTL have any competitive advantage?
The fiber in the ground is about it. They need to clean house of the old Qwesty management that broke the company. Everything you hear from them is a lie. All up the line they fudge numbers and tell their bosses what they want to hear. The systems and cumbersome processes decrease efficiency, morale and customer service. They just make the numbers look right no matter what it takes, and that may be what the delay was about.
David Klein profile picture
Interesting read sponsored by CTL
Organizing the Business for Digital Transformation in Manufacturing
February 2019
Questions posed by: CenturyLink Answers by: Reid Paquin, Research Director, IDC Manufacturing Insights

There is also a message from the sponsor after the Q&A that give some stats.
JohnJKCal profile picture
Thank you for an encouraging article. We will see when they release the quarterly earnings report and call transcript in May. I just added another 60+64 = 124 shares on April 5, accidentally hit buy with market price twice. So far, the price of CTL continue to drop with any negative market sentiment. I suppose the next Q earnings Call will tell. Never good to tell investors that dividends were safe and cut it in the next quarter. Silly to call in so many their baby bond when Storey took over with a fantastic Q. I own many of their baby bonds, after selling off the highest coupon CTAA upon the good news when Storey do his bullish talk. CTL intermediate bonds are actually the best bet. I own some and the bonds did not react as violently with severe drop as the common giving much better yield than the baby bonds.
Dividend Dojo profile picture
This makes me consider buying more CTL even though I already am heavy in CTL and at a much higher average price point ($22).
Justin Wiedeman profile picture
I bought a little in low 20s but bought in steps all the way down. That is how I buy into positions. My heaviest buying in the 14s and sub-12. Volatility can be opportunity. I believe the financials of this company are totally misunderstood. Good luck regardless.
bad move. lastest conference call, management communicates a turn around over 3 years away.
@Imakingthisup They are ahead of schedule: news.centurylink.com/...
- Achieved the originally projected annualized run-rate Adjusted EBITDA synergies of $850 million related to the acquisition of Level 3 as of the end of 2018, two years earlier than anticipated
- Announced additional annualized run-rate savings of $800 million to $1.0 billion of synergies and transformation initiatives projected to be realized over the next three years
beisbol profile picture
Nice work as usual, David. I think CenturyLink’s marketing team could use your help!
beisbol profile picture
Or investor relations-those whose job it is to promote the stock!
Justin Wiedeman profile picture
@beisbol How about a long term contract with NASA? You kidding?
Justin Wiedeman profile picture
@beisbol Thank you for calling the bottom!
CTL may have the tools but do they really know what to do with them.
Agree that debt needs to be cut. When the announced in prior CC that dividends were safe and would not be cut then to cut in the following quarter.
Creditability may be lacking. The only thing CTL has given is tax losses.
Justin Wiedeman profile picture
@olde1two No Content!
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