Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Can CenturyLink Make Money?

On the surface, the old-fashioned telecom CenturyLink Inc. (NYSE: CTL) looks like a value investment. To explain, Mr. Market gave CenturyLink had a $12.63 stock price on 4 March, 2020.

In contrast, CenturyLink reported quarterly revenues of $5.57 billion and a quarterly profit of $3.049 billion on 31 December 2019. Moreover, CenturyLink reported an operating income of $847 and a common net income of $223 million for the quarter ending on 31 December 2019.

Plus, CenturyLink reported an operating cash flow of $1.909 billion and an ending cash flow of $286 million for the same quarter. Thus, CenturyLink makes money and generates cash from its business.

Could Berkshire Hathaway Buy CenturyLink?

Additionally, CenturyLink is a cash rich-company that had $1.693 billion in cash and short-term investments on 31 December 2019. Moreover, CenturyLink claimed to have total assets of $64.742 billion on the same day.

Thus, CenturyLink is a money making company with a cheap stock and a lot of value. Thus you can argue that CenturyLink (NYSE: CTL) looks like a classic Warren Buffett value investment.

For example, CenturyLink is cheap, somewhat obscure, and unsexy. For instance, CenturyLink’s surface rests on a product that a lot of people believe is dead: landlines. Yet Statista estimates 41.7% of U.S. households had a landline in 4th Quarter 2018.

What Value Does CenturyLink Have?

Given those numbers, I estimate 53.61786 million U.S. households had a landline in 2019. To clarify Statista, estimates there were 128.58 million U.S. households in November 2019. Additionally, 41.7% of 128.58 million is 53.61786 million.

However, landline use is falling fast. Statista estimates the percentage of US households with a landline fell from 92.7% in 2004 to 41.7% in 2018. Thus, CenturyLink’s business rests upon a dying product: landlines.

Why Warren Buffett could buy CenturyLink

Consequently, some people will wonder if Berkshire Hathaway (NYSE: BRK.B) will buy CenturyLink. Berkshire has a history of buying moneymaking businesses in dying industries.

For instance, Buffett invested heavily in newspapers for 45 years while the industry was dying. However, newspapers were still generating vast amounts of cash from advertising and subscribing until recent years.

Thus, Berkshire made large amounts of money from a dying industry that other investors were ignoring. Since, Berkshire sold all of its newspaper holdings in January 2020, Buffett will need a new investment.

Are Telecoms the New Newspapers?

Telecoms, such as CenturyLink could be that investment. Like newspapers 20 years ago, telecoms are a cash rich business with low stock prices many people dismiss.

I think telecoms will die, but they are generating huge amounts of money from subscriptions. CenturyLink had 5.4 million broadband subscribers in 2018, Statista estimates.

CenturyLink could theoretically make $264.6 million a month from broadband because of those subscribers could pay $49 a month for service. Thus, CenturyLink could generate $49 a month in float.

To clarify, in Buffett’s world float is a stream of cash a company can tap for any reasons. Buffett built Berkshire Hathaway (NYSE: BRK.A) with float from insurance companies, newspapers, and other sources.

Why Berkshire Hathaway could buy CenturyLink

I think a Telecom could fit in well at Berkshire Hathaway because Telecoms generate huge amounts of float. Additionally, telecoms are cheap and Buffett wants to make a big purchase.

Notably, Mr. Market gave CenturyLink a market capitalization of $13.159 billion on 31 December 2019. Plus, Berkshire Hathaway had $64.175 billion in cash and short-term investments on 31 December 2019.

Thus, CenturyLink could be the big acquisition, Berkshire could buy. However, CenturyLink has one attribute Buffett fears shrinking revenues. For instance, Stockrow estimates CenturyLink’s revenue shrank by -3.6% in the last quarter of 20219. Moreover, CenturyLink’s revenues shrank for every quarter in 2019, but grew by 8.55% in the last quarter of 2018.

Consequently, I think Buffett could pass on CenturyLink because of the growth. However, investors seeking bargains in the market need to look at CenturyLink.

Is CenturyLink a good Dividend Stock?

I think CenturyLink (NYSE: CTL) is a decent dividend stock because it will pay a 25₵ dividend on 6 March 2020.

Overall, CenturyLink shares offered an 8.03% dividend yield, an annualized payout of $1, and a 69.13% payout ratio on 4 March 2028. Thus, you can make dividend income from CenturyLink.

Additionally, I think the dividend gives CenturyLink a high margin of safety. I believe that makes CenturyLink a value investment for the next few years. Hence, I brand CenturyLink a nice investment stock. However, CenturyLink’s future could be cloudy because of Elon Musk.

How Elon Musk could Destroy CenturyLink

Strangely Musk’s SpaceX could destroy CenturyLink’s business with its StarLink Project.

To explain Musk hopes to launch 12,000 to 30,000 low-orbit satellites intended to provide wireless internet to everybody on Earth. Musk claims the internet could generate $1 trillion to pay for his Mars colonization scheme, reports.

SpaceX hopes to begin internet service in 2020, reports. Currently, SpaceX is launching batches of 60 satellites to create the StarLink network, Stuff reports. Incredibly, Teslarati claims SpaceX is building Starlink satellites faster than it can launc them.

I think StarLink could destroy because CenturyLink because it could offer cheap broadband service to everybody everywhere. Thus, CenturyLink could have a giant competitor with far lower operating costs.

Can CenturyLink Survive?

To explain, StarLink will not need to maintain CenturyLink’s massive infrastructure of phone lines, broadband, fiber optic cables, etc. Hence, StarLink could theoretically offer internet at lower prices than CenturyLink.

On the other hand, there is no guarantee that StarLink will work. In addition, I think it will take several years to build, test, and market StarLink. Hence, I do not think StarLink will be a serious competitor to CenturyLink until 2025.

Thus, CenturyLink could make serious amounts of money from its business for a few years. In the final analysis, I believe CenturyLink could be a good value investment that could make money for several years to come.

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