Does WOW Need a Buyer?

Nov 10, 2023

By Ted Hearn

Washington, D.C, Nov. 10, 2023 – WideOpenWest, Inc. (WOW) reported mixed third quarter results Wednesday followed by a massive Wall Street selloff on Thursday and Friday that inflicted sever pain on WOW shareholders, who were already down 19 percent on the year.

On the plus side, CEO Teresa Elder noted record high-speed data revenue of $109.8 million, an increase of $7.5 million, or 7%, compared to the third quarter of 2022. And she said adjusted EBITDA was $70.9 million, an increase of $2.4 million, or 3%, compared to the third quarter in 2022. WOW’s video shift from cable/IPTV to YouTube TV appears to be going well, especially with new subscribers, Elder added.

Now, the bad news. WOW’s quarterly revenue of $173.1 million was a decrease of $0.6 million, compared to the third quarter of 2022, and the company had a net loss of $104.5 million for the third quarter driven by a $131.7 million non-cash impairment charge on intangible assets.

WOW’s results tend to be choppy, but it appears two things really triggered Wall Street to issue downgrades and sell with abandon. WOW said it lost 4,400 broadband customers in the third quarter, and both Elder and CFO John Rego said they expected the fourth quarter to be “significantly worse,” with Elder pegging fourth quarter broadband losses at about 13,000.

When the dust settled Friday afternoon, Wall Street said WOW’s stock was worth just $240 million, down 61 percent since the Wednesday afternoon close when Elder and Rego got on the earnings calls with Wall Street.

Elder likes to refer to WOW as a “challenger brand,” a feisty rival that knows how to defend legacy markets and acquire new customers in so-called “greenfield” locations where the company is busy deploying fiber networks in places like central Florida.

Still, Crestview Partners III GP, LP, the private equity firm that owns 37.67% of Colorado-based WOW, might decide this is the moment to find a buyer for WOW.      

Based on recent cable broadband transactions, it would appear that WOW could fetch a lot more for its stock that the current price in a sale of the entire company. Two years ago, Edler sold 418,000 subscribers to Breezeline and Astound Broadband. The deal gained WOW $1.785 billion, allowing the company to shore up its balance sheet and plan for growth.

WOW today has 686,900 revenue generating units – of which 503,400 are broadband subscribers and the rest are video and phone customers. A review of the cable broadband transactions that seem relevant – including the two involving WOW in 2021 – suggest a buyout price range between $21 to $59 a share, even after taking into account WOW’s $889.1 million debt load.

Although Wall Street today says WOW is worth a measly $240 million, a WOW put up for auction could be worth between $1.7 billion and $4.9 billion, though the former seems way too low and the latter way too high.

WOW likely needs to make a decision soon because competition in the residential broadband market is heating up.

Fixed wireless access (FWA) providers T-Mobile and Verizon – who are now being joined by AT&T and UScelluar – just came off a sizzling third quarter and will likely continue to limit cable broadband’s growth in some cases and cause customer losses in others. In the last quarter, the major cable and telco broadband providers added about 53,000 new customers while FWA providers tacked on about 900,000.

WOW won’t need to rely on history to get some sense of its current value. Shentel agreed in October to buy commercial fiber provider Horizon Telcom for $385 million. Like WOW, Horizon has been investing in fiber-to-the-home (FTTH) in greenfield markets. Horizon, a much smaller entity than WOW, generated $64.7 million in 2022 revenue. And debt-challenged Altice, a far bigger company than WOW, could be forced to sell some broadband assets.

It’s never a good time to look for a buyer after a shellacking on Wall Street. But WOW probably needs to realize fast that its days as a challenger brand have ended.