Clearwire Takes a Well-Deserved Beating: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Clearwire (Nasdaq: CLWR  ) took a beating -- down 28.8% at the close -- after announcing plans to raise $900 million in additional funding to build out a network that may fail to compete successfully against well-heeled alternatives.

So what: The news came during Clearwire's second-quarter earnings report, which was ugly. Get the financial details here. What's important is the plan. Management wants to build an LTE network while it completes the WiMAX network it's been working on for years.

Now what: I was wrong. Technology isn't the problem; debt is. Clearwire ended the quarter with the same $4 billion in debt it started the year with, all while bleeding more than $567 million in cash from operations. To be fair, the balance sheet also shows wireless spectrum licenses worth $4.3 billion. Carriers mat very well bid for a slice of that air, but Clearwire's troubling financials don't leave a lot of room for negotiation, especially now that economic worries are roiling the debt and equity markets. A deal similar to the one Liberty Media extracted from Sirius XM Radio (Nasdaq: SIRI  ) two years ago may be the best current investors can hope for. Do you agree? Disagree? Weigh in using the comments box below.

Interested in more info on Clearwire?Add it to your watchlist.

Fool contributorTim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim'sportfolio holdings andFoolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insightsdelivered directly to your RSS reader.

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  • Report this Comment On August 04, 2011, at 7:35 PM, 354JQ wrote:

    You have to feel bad for the people at Clearwire. The let Sprint buy controlling interest and then the fools at Sprint jumped for a hedgefunder who said he had better technology. No doubt they got scammed but it was their own fault for not looking into it a little bit closer.

    What's left of Clearwire is a takeover jewel. With LTE running, in the current and coming demand for broadband, their network may well have the upper hand in most of the major markets in the country. Considering the piles of cash that are being held by company treasuries, it won't be long for someone to step up and be a white knight for hardly more than peanuts.

    The spectrum certainly is worth more than the company's debt and the rest of the physical network, combined with the customer base and whatever is left of the goodwill, should bring an offer that will, after everything else is deducted, beat the current market cap by some multiple. That is unless Sprint decides to keep what it wants and lets the rest go under. Trying to guess which way this will go doesn't look like a good bet at this point......

  • Report this Comment On August 04, 2011, at 7:44 PM, spokanimal wrote:

    @354JQ... The problem is sprint's ownership. CLWR sells for a fraction of book value and it's "liquidating value" is a smaller fraction than that.

    CLWR may carry it's spectrum on the books at $4.6 billion but the market value of that spectrum is realistically between $8 and $19 billion.

    If this company were widely held, the bigs would be lining up to buy it out... but it isn't... sprint stands in the way and sprint doesn't appreciate what it has for some mysterious reason.

    In the end, that spectrum and that state-of-the-art infrastructure ("09 and "10 vintage... it's already as good as sprint's "network vision" upgrades) isn't going anywhere and if the company is correct in becoming "EBITDA positive" in Q1-12, "cash-flow" positive will occur just a quarter after that and the cash-burn will be over from an "operations" perspective...

    ... which will just make the company that much more attractive so whatever suitor sprint will allow up the aisle.

    S

  • Report this Comment On August 05, 2011, at 12:29 PM, spokanimal wrote:

    Las Vegas Sands (LVS) once sold for $1.38 a share.

    Was it worth a buck-thirty-eight? Of course not!... but that's what happens when "fear" turns to "panic".

    19 months before LVS sold for $1.38, it sold for $150 a share. Was it worth $150? Of course not!...

    but that's what happens when greed an euphoria take control.

    So now we have Clearwire... a company that increased their subscribers by 1,300% in 18 months and controls 23% of all spectrum that licensed for wireless internet/telephony in the U.S.

    Value Line lists Clearwire's book value at $20 per share... yet the stock sells for a panic-driven $1.85.

    Value Line's $20 book value per share also values Clearwire's spectrum at $4.6 billion... roughly 1/2 to 1/4 of it's true, market value.

    Sometimes, I see insanity in the marketplace borne out of panic and capitulation... over half of CLWR's float is sold short these days...

    ... and it's when I see that happen that I make my best investment decisions.

    Spokanimal

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