Why Are You on Cloud Nine for Level 3?

I don't know why y'all love Level 3 Communications (Nasdaq: LVLT  ) so much.

It's a four-star CAPS stock with a 94% approval rating from more than 1,760 CAPS players, and every time I talk about the company with anything less than glowing adulation, my inbox fills up with angry diatribes.

Sure, the stock has gained 15% in the last six months, leaving like the S&P 500, Verizon Communications (NYSE: VZ  ) , Qwest Communications (NYSE: Q  ) , and AT&T (NYSE: T  ) eating Level 3's dust. But I don't get it. Over a longer time frame, like the last three or five years, only Sprint-Nextel (NYSE: S  ) among Level 3's peers has destroyed value so efficiently: Level 3 is down 78% over the three-year period, while the broader market lost only 26% -- including during the terror of 2008.

And Level 3's results aren't all that inspiring. In the fourth quarter of fiscal 2009, the company saw sales shrink 12% year-over-year to $924 million, while last year's $0.10 loss per share increased to $0.11 per share. Level 3 is getting worse, not better.

In the coming year, management expects to hire more sales staff and invest in its networking infrastructure, which are commendable moves in dark times. Also, the company has made attempts to move into the booming content distribution network market that has brought riches to rivals like Akamai (Nasdaq: AKAM  ) and Limelight Networks (Nasdaq: LLNW  ) .

But I haven't seen anything worthy of the support our CAPS players and Mr. Market himself keep giving Level 3. It's an unexplainable love story of the same magnitude as Sirius XM Satellite Radio or Apple in my eyes, and really, I just don't get it.

So, Level 3 diehards, could you explain to me why you love this company so much? My email inbox is ready and waiting, though the investing community will be better served if you share your thoughts in the public comment box below, or with a CAPS commentary. Choose your weapon and fire away!

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Sprint Nextel is a Motley Fool Inside Value recommendation. Apple is a Motley Fool Stock Advisor pick and everybody else's favorite stock. Akamai Technologies is a Motley Fool Rule Breakers selection. Go figure. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (11) | Recommend This Article (13)

Comments from our Foolish Readers

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  • Report this Comment On February 10, 2010, at 12:29 PM, Steve819 wrote:

    I've always figured the shareholder base was made up of ex-Gilder Report subscribers and/or people who view Jim Crowe as a visionary.

    See one Wired article over here:

    http://www.wired.com/wired/archive/6.11/crowe.html

  • Report this Comment On February 10, 2010, at 12:56 PM, Matt8265 wrote:

    Because TMF thinks it's a stinker makes it a buy for me.

  • Report this Comment On February 10, 2010, at 1:04 PM, steve123123 wrote:

    It's because Wall Street Journal was touting that Sprint was considering combining its long-distance division with Level 3 but waiting for Level 3 pay down some of it's debt

    BTW, Level 3,., has a fiber-optic network connecting 22 countries covering 53,000 miles.

    That has to be woth something

  • Report this Comment On February 10, 2010, at 1:06 PM, steve123123 wrote:

    It's because Wall Street Journal was touting that Sprint was considering combining its long-distance division with Level 3 but waiting for Level 3 pay down some of it's debt

    BTW, Level 3,., has a fiber-optic network connecting 22 countries covering 53,000 miles.

    That has to be woth something

  • Report this Comment On February 10, 2010, at 1:07 PM, steve123123 wrote:

    That has to be *worth something

  • Report this Comment On February 10, 2010, at 4:19 PM, spud2288 wrote:

    Bandwidth

  • Report this Comment On February 10, 2010, at 9:03 PM, mrsix666 wrote:

    Ithey still does business with Kiewit. This is a great Long play. the diversity, capacity, and scale of the network that is in the under the soil and in place is mind bending. Walter Scott maybe past his prime but he knows how to invest in a company. Kiewit (Walter Scott was CEO until late 90's)=Omaha=Same office as Warren Buffet= they know what they are doing.

  • Report this Comment On February 11, 2010, at 10:36 AM, miteycasey wrote:

    Anders,

    I agree with you. I'd invest my money else where, but I'll try to intelligently defend the others.

    One word...Google.

    http://www.pcworld.com/businesscenter/article/189096/google_...

    Spud228 has it correct in that it's the bandwidth that they have dark that they can turn on when they want at little to no cost. Go back to 2000 and the dot com world and companies were planting fiber as fast as they could get it. One compnay was turning off oil pipelines to run fiber through their pipes. Of course the web stopped (relatively) growing and many of these companies went under(World Com, etc.).

    Through acquisitions they probably have more dark fiber than all the fiber currently in use and when the USA catches up to the rest of the world in broadband L3 will be right there.

    http://arstechnica.com/tech-policy/news/2009/06/us-20th-in-b...

    One word...Google.

    http://www.pcworld.com/businesscenter/article/189096/google_...

    Remember that in 1999 most internet connections were dial up at 56KPS, in 2010 it's broadband at 10MPS, in 2020 it will be 10GPS.

  • Report this Comment On February 11, 2010, at 10:59 AM, miteycasey wrote:

    Anders,

    I agree with you. I don't think I'd invest in this company, but I can understand why others would.

    1) The USA is ~20th in the world in broadband connectivity. That will grow.

    http://arstechnica.com/tech-policy/news/2009/06/us-20th-in-b...

    2) one word....google.

    http://www.pcworld.com/businesscenter/article/189096/google_...

    3) Amount of bandwidth. Back during the dot com boom companies were planting fiber like it was corn. I remember a story about an oil company turning off it's oil pipeline so they could run fiber through those same pipes. Most of these companies went under(World Com, etc.) L3 was there to buy these distressed assets. Now L3 probably has as much dark cable as light.

    4) Internet speeds.

    2000 = 2KPS(dial up)

    2010 = 10MPS(broad band)

    2020 = 20GPS(Internet 2.0)

    As technology gets cheaper these speeds will come.

    L3 has positioned itself to be the backbone of the internet future.

  • Report this Comment On February 11, 2010, at 12:30 PM, damilkman wrote:

    There are a lot of misconceptions about the telecom market. First saying the US is 20th in broadband connectivity is silly. Its really easy to make a country like South Korea broadband enabled when 90% of the population lives in 4 metropolitan areas. The continetal US is composed of a land mass that is roughly 3000 miles by 1200 miles, filled with 300 million people living in dozens of major metropolitan areas. The scope of lighting that many people up is a project many orders of magnitude higher.

    Now regards to Level3, there appears to be plenty of fiber for their competetors. Many have much deeper pockets and local voice revenue that funded their internet growth. There is also way too many global telecoms competing for the same customer.

    Lastly, Level3 appears to be good in tech and finance. However, ultimately you have to sell it. For whatever reason, they have not been so savey on the people and marketing side. They seem stuck in the "we will make a moat and they will give us all their money"

    Level3 once traded at 158. So if you were a long, ten years ago, you will never make your money back. I think its worth a shot at a buck thirty. However, there will not be much money made until the number of global players gets cut down by 50% or so? Just a guess. Ditto for regional markets.

    One tactical mistake I think Level3 made was not getting in LATAM. That is a market that has not been hit up as much by the extreme competition that we observe in NA and Europe. And of course as Level3 found out in Asia, if your not an insider forgetaboutit.

  • Report this Comment On February 12, 2010, at 10:44 AM, TMFEditorsDesk wrote:

    Thanks for the comments everyone, this is a difficult company to wrap your head around.

    -Eric (TMFRhino)

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