As many of InvestingDecoded readers already know, I like to continue follow the stock that I mention on this blog so I can keep readers apprised of happenings on those companies. One of the stocks that I had mentioned a while back is Clearwire, the wireless broadband company that sells internet access through its 'Clear' brand name. This company in many ways is a pioneer in the internet space. Its service is the first mass-marketed wireless internet service that provides users with 4G access by utilizing the Sprint broadband network. However, given the recent developments in the company, this pioneering spirit may now be its downfall.
The Background
Before we get to the juicy developments, let's talk a little about background. The most interesting aspect of CLWR is its ownership structure. The company was formed by a consortium of some of the biggest technology names including a 54% ownership stake from Sprint corporation. Other stakeholders include Comcast and Intel. Now comes the interesting part.
As I've learned over the last couple of months, the primary reason that Sprint even got involved in creating the company was to create a technologically advanced platform from which to build its own 4G offering. But the way the ownership structure was created, Sprint did not have a direct say on CLWR's operations, and CLWR went ahead and created its own wireless broadband offering, essentially competing directly with Sprint.
The DL
Now this has apparently been somewhat of a flash point between the two companies for a while now. However, it has recently come to a head as CLWR has been hitting cash availability issues to fund its ongoing operations along with its ambitious expansion plans. As of 9/30, the company had $1.38 billion in cash and equivalents. That's down over $2B from the same time last year. To put this in perspective, operating losses for the quarter ending 9/30 were $540M, meaning the company can potentially run out of cash by end of next year.
In the past, Sprint has come to the rescue and injected fresh capital into the firm. However, it seems that its reluctance to do so now is an indication that the firm is finally trying to wrestle some control of the company. The latest rumor is Sprint my try to kill the Clear brand all together so it isn't a competitor to Sprint's own business. Instead, CLWR would become the wholesale technology provider to Sprint that Sprint originally hoped for.
Potential Impacts
This ordeal has already had a pretty drastic impact on CLWR with its stock down 30%+ in the last few months alone. The more important issue now is what the potential impacts are. Personally, I don't think that Sprint will completely kill off the CLWR name, nor will it allow CLWR to go under. The company does have an emerging brand name and strong infrastructure. Letting all that go would be foolish. Instead, I expect Sprint to arrange a new ownership structure for some bridge financing. The terms will likely be strict since Sprint itself isn't in too much of a position to help other companies since it has plenty of problems of its own.
Where Does the Stock Go From Here?
At least in the near term, I see a lot of the same volatility in the stock. However, I see limited downside potential since the company has already come down to a reasonable 7x EV/Sales multiple from a high 13x earlier this year. I see the stock trading flat overall, but there may be some trading opportunities available in Call options.
Longer term, I see some potential upside, but that really depends on how the funding crisis is resolved. Although I think it will be resolved, I can't say what the terms will be and if they will be good for shareholders.
CLWR is a good company that has a product that I feel has great long-term potential. If you want to get involved in the continued wireless revolution, CLWR would be a good way to do it. However, be ready to stomach some serious volatility and risks.
The Background
Before we get to the juicy developments, let's talk a little about background. The most interesting aspect of CLWR is its ownership structure. The company was formed by a consortium of some of the biggest technology names including a 54% ownership stake from Sprint corporation. Other stakeholders include Comcast and Intel. Now comes the interesting part.
As I've learned over the last couple of months, the primary reason that Sprint even got involved in creating the company was to create a technologically advanced platform from which to build its own 4G offering. But the way the ownership structure was created, Sprint did not have a direct say on CLWR's operations, and CLWR went ahead and created its own wireless broadband offering, essentially competing directly with Sprint.The DL
Now this has apparently been somewhat of a flash point between the two companies for a while now. However, it has recently come to a head as CLWR has been hitting cash availability issues to fund its ongoing operations along with its ambitious expansion plans. As of 9/30, the company had $1.38 billion in cash and equivalents. That's down over $2B from the same time last year. To put this in perspective, operating losses for the quarter ending 9/30 were $540M, meaning the company can potentially run out of cash by end of next year.
In the past, Sprint has come to the rescue and injected fresh capital into the firm. However, it seems that its reluctance to do so now is an indication that the firm is finally trying to wrestle some control of the company. The latest rumor is Sprint my try to kill the Clear brand all together so it isn't a competitor to Sprint's own business. Instead, CLWR would become the wholesale technology provider to Sprint that Sprint originally hoped for.
Potential Impacts
This ordeal has already had a pretty drastic impact on CLWR with its stock down 30%+ in the last few months alone. The more important issue now is what the potential impacts are. Personally, I don't think that Sprint will completely kill off the CLWR name, nor will it allow CLWR to go under. The company does have an emerging brand name and strong infrastructure. Letting all that go would be foolish. Instead, I expect Sprint to arrange a new ownership structure for some bridge financing. The terms will likely be strict since Sprint itself isn't in too much of a position to help other companies since it has plenty of problems of its own.
Where Does the Stock Go From Here?
At least in the near term, I see a lot of the same volatility in the stock. However, I see limited downside potential since the company has already come down to a reasonable 7x EV/Sales multiple from a high 13x earlier this year. I see the stock trading flat overall, but there may be some trading opportunities available in Call options.
Longer term, I see some potential upside, but that really depends on how the funding crisis is resolved. Although I think it will be resolved, I can't say what the terms will be and if they will be good for shareholders.
CLWR is a good company that has a product that I feel has great long-term potential. If you want to get involved in the continued wireless revolution, CLWR would be a good way to do it. However, be ready to stomach some serious volatility and risks.
