The path to $100
Msg 159742 of 181926 at 5/12/2019 2:32:09 PM by
The following message was updated on 5/12/2019 4:16:29 PM.
the path to $100. i think ctl has a shot in 5 years to get there. heres how it happens
from time to time you get crazy stuff happen in stocks. we are at one of those inflection points with ctl. the entire analyst community is fixated on voice and how bad this industry has been for 20 years. i am going to lay out my case for this stock being worth a $100 bucks to amazon in 5 years if its stays private that long. i am going to tell you why its different this time. i know the risk with saying that. here goes.
in 2011 the mouse lady mentioned to me at one of the lvlt annual meetings that amazon looked at buying global crossing. none of us could figure out why. at that time i had never heard of aws. neither had anyone else. well we now know why amazon looked at glbc. that was just 8 years ago.
about that same time in 10 or 11 a friend of mine mentioned that the ceo of a large cdn company was having regular meetings with jim crowe. more than one of the topics at those meetings went like this "jim, there is no reason to own a network when you can just cache the content at the edge using our cdn product." they would disagree and then meet again and disagree. looking back 8 years later i think the cdn guy won the debate. let me explain why. (p.s there is a happy ending coming)
if i wanted to watch youtube or netflix, storing the video at the edge made total sense. if there was any latency issues (buffering) i would simply go get a drink or fold the laundry. there was no economic loss to society if missed 20 seconds of a rerun of star wars. the balance of power starts to shift to the network when you get into live sports. that said, if they delay your feed by 1 minute will you care? of course you have to not have your phone with you when the texts come in from what happened but you get the point. high latency, cheap bandwidth that occasionally buffered did not cause an economic hardship to the end user. when the reality hit that latency didn't matter, there was a race to the bottom in bandwidth pricing. lvlt/ctl did ok in this world because they are a supplier of bandwidth but they had no pricing power. the industry sucked because if you are 10 second behind watching nebraska football there is no economic hardship.
so when is there an economic hardship from high latency? paul savill gave a talk at amazon reinvent in november of 2018. around the 12 min mark he talks about a client using robotics on the factory floor who was pissed at ctl. he wanted to know why they sent the bandwidth from la to atlanta to seattle. when they did that the latency made the robot not work in seattle. paul said you arent a client thats why. be our client and we will stop that from happening. paul went on to talk about the products where latency needs to be under 15 milliseconds. now lets compare this to what has happened in bandwidth for 20 years. when there is a latency issues today at a factory, the machine stops and the company loses money. suddenly how cheap the bandwidth is doesnt matter. latency matters. storing at the edge is not an option. price is secondary. if you use facial recognition at airports or nfl games, latency matters. if you have an autonomous car using 5g lets hope the supplier didnt take the low price high latency option. duck if they did.
what about low latency for cloud computing? if the data buffers there is no economic loss right? my secretary goes and gets more coffee. no big deal. for some stuff it might be really important depending on what product they are using but lets say there is no economic hardship for buffering on cloud computing. HOWEVER if you are going to make a sales pitch to gm, walmart etc to put all of your data on the cloud you need a stable connection right? what if someone does a fiber cut in denver of lvlt's long haul pipe? i am screwed. i have an economic loss. this is serious because i could have my whole work force down for days in seattle because of what happened in denver. if i am that cio i need assurance that there is a back up. here is how ctl and lvlt can win that order. ctl has 12 lh conduits. ctl also owns other conduits buried IN A DIFFERENT SPOT THAN lvlt's lh conduits, wiltel and qwest (or others). i can devise a system where a long haul fiber cut on lvlt's pipes in denver will not cause you down time if my back up is wiltels network located somewhere else. i am unaware of any other company that can says this (perhaps vz/xoxo). if i am the defense department i would buy lvlt/ctl. ha. once again i now have an edge on selling this order that it appears no one else can do. pricing power
one thing to keep in mind on fiber. the new standards came out for g.654 long haul in 2017. the old fiber works good up to 100 g transmission if you spend a lot on electronics. the new fiber is designed for above 100g. fiber has finally improved. that swag is from corning so take it for what its worth. at year end 2017 ctl had fiber and conduit on the balance sheet of 22,798. at the end of 2018 it was 23,936. they spent 1,138 billion on fiber. trust me, that aint all for hooking up new buildings.
i will post comments by storey at the bottom of this page for you to think about now that i have typed this stuff above. what i am saying is that the future of telecom is low latency secure delivery of bandwidth. the past was high latency cheap bandwidth. as the robots, ai etc take over, they wont work with high latency. the network is going to matter and ctl has it. i think 40 times free cash flow in 5 years would be a fair tech price multiple if i am right. at an earnings yield of 2.5% i can dominate the new economy when combined with the cloud. at todays prices that puts us at 100 for the stock. so thats my target. whoever controls the low latency network will own factory automation. you will be the company that controls the factory floor and the cloud. i would pay up for that.
STOREYS COMMENTS TO HELP WITH THIS
'''''Yes. If you look at our edge computing strategy, we think there's a great opportunity for us to get very close to the edge of the network. And I'm talking from a latency perspective, 5, 10 milliseconds from all of our customers and put edge computing facilities at those locations. Would we be interested in selling those? Probably not, because we think there's such a great opportunity as the market for those needs evolve, and we have such a unique set of assets to do that.''''''
''''''''''As I mentioned last quarter, CenturyLink owns and operates nearly all of the major next generation long haul fiber networks ever built in the US. We also own and operate incredibly rich and dense metro fiber networks, with technical facilities distributed deep within the markets we serve. We have more than 150,000 on-net enterprise buildings on our global network, which we are adding to every day. We connect to more than 2200 public and private data centers and have connectivity to approximately 60 web scale data centers. We believe there is tremendous embedded value in these assets, a few of that is validated by the multiples at which these types of assets have transacted.
As the operator of these assets, CenturyLink is in a very unique position to take advantage of the technology evolutions still ahead of our enterprise customers. We talk a lot about legacy revenues. And yes, we were exceptionally good at selling and providing legacy services to our customers. But we're exceptionally good at leveraging our fiber networks and next generation capabilities to provide services our enterprise customers need. The 100 gig waves and SD WAN services of today through the dynamic bandwidth and low latency edge computing world of tomorrow.
Wherever our customers want to go in the digital world and however they want to get there, our global fiber network can take them. We are a purpose built network for AI and big data world. We are a purpose built network for the fourth industrial revolution. Our robust network and diverse product set are the key reasons why we've been growing our sales funnel. We regularly hear from customers that our scalable networks uniquely positions CenturyLink to meet their needs from growth in bandwidth demand, cloud computing and hybrid networking.'''''''''''
''''''I mentioned earlier the tremendous set of assets we've assembled and I would like to go a little further into that and why we intend to ramp investments from our 2018 level. If you turn to Slide 4 of the presentation, you can see many of the networks we have assembled to build CenturyLink. In fact we operate nearly every NextGen Next Generation fiber network has been built since the late 90s. I'm not suggesting the technology we use back then to light the fibers still in service, but the fiber itself and the conduit systems those fibers are placed in remain within our network and are incredibly valuable.
On the long haul side, we have consolidated the domestic and international fiber and conduit assets of Genuity, WilTel, Broadwing, Quest, Global Crossing and of course Level 3 serving customers in more than 60 countries worldwide and tied together with substantial subsea capacity. This is not a hodgepodge of network assets thrown together with a little bit of network here and a little bit of network there. To me these assets really represent the combination of the best long haul networks ever built.
On the metro side, our assets include of course Legacy CenturyLink but also the extensive metro assets of Level 3, TW Telecom, Progress Telecom, ICG, Looking Glass, Embark, Telco, we are rich and deep in fiber and connect thousands of buildings worldwide. In fact the conservative estimate we made when the transaction closed was that we had more than 100,000 fiber-fed buildings. After a detailed audit over the last year, and with significant number of new buildings added to the network in 2018, we now report more than 150,000 enterprise buildings worldwide including more than 2,200 public and private data centers and the number of on-net buildings is still growing.
In addition, our metro and long haul conduit systems give us a significant cost and time to market advantage over five networks that were directly buried in the earth and a reliability advantage over infrastructures like aerial fiber. Adding our next long haul fiber cable is a simple matter of pulling the cable into a spare conduit, no new rights of way, no permitting, no trenching, just pull and splice.
As a result of the various networks we've acquired, we often have multiple routes and conduit systems choose from to enhance diversity, improve latency, and further reduce our costs to build.'''''''
'''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.'''
;;;Fiber deployment remains a crucial priority in our capital budgeting process and we consistently add more fiber than you probably realize. While most cables deployed today are made up of traditional fiber types looking at just the last 36 months, we've added 3.5 million fiber miles in new ultra low loss fiber that will enable new levels of performance across the network and for our Dark Fiber customers seeking to build their own multi-terabit systems. Although fiber technology has evolved far more slowly than the electronics used to light the fiber, we believe our spare conduits ensure we are future proofed against technology changes and fiber constraints; whether expanding our metro fiber footprint, continually adding new buildings, or increasing our long haul fiber inventory, we continue to invest in our fiber infrastructure.