Bash My Stock: Clearwire

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The concept here is simple: Take a well-liked company on Motley Fool CAPS and completely debunk the notion that it's worth buying. Does this mean after I put a company through the wringer that it's worth selling? Maybe, maybe not -- that's up to you to decide. The point of "Bash My Stock" is to expose the fact that there's another side to every trade, and this series will attempt to look at the bearish view of why a stock might not be such a great value after all. Today I suggest we take a closer look at wireless broadband provider Clearwire (Nasdaq: CLWR  ) .

Although Clearwire is ranked only as a two-star CAPS stock, out of the 651 participants at the time of writing who have weighed in on the stock, a resounding 536 of them think it will outperform the S&P 500. Optimists will point out that the company is trading near book value, has phenomenal subscriber growth and has a deal with Sprint Nextel (NYSE: S  ) in place that takes them through November 2013. Well, optimists, I'm here to tell you that the light at the end of the tunnel is getting dimmer by the day. It's time for me to bash your stock.

Although Clearwire has a myriad of problems facing it at the moment, perhaps none is more troublesome than Sprint's decision this week to focus on fourth-generation long-term evolution instead of Clearwire's current wireless WiMAX technology. Sprint's decision to invest billions into 4G LTE effectively closes a future revenue stream with Sprint. since Clearwire is nowhere near ready to deploy a 4G LTE network yet.

Another aspect optimists will often tout is Clearwire's highly sought-after spectrum assets. The company currently possesses 45 billion MHz worth of spectrum, and with industry pundits predicting large increases in wireless usage over the next four years, I can definitely see where Clearwire's spectrum could come in handy, since there's not nearly enough bandwith currently available on other networks to handle a large increase. Then again, I could also easily see how it would be easier for Sprint and its competitors to allow Clearwire to fall into bankruptcy and purchase this spectrum for potentially pennies on the dollar in court. Beyond its deal with Sprint, Clearwire's revenue stream isn't very secure, and it peers might prefer it that way.

Then there's that little issue of profitability. Clearwire did note a 365% boost in subscribers during the second quarter, but that didn't do a thing for the company's bottom line. In fact, when Clearwire isn't lined up on Sprint's doorstep looking for a financial handout, the company is busy burning its dangerously low cash pile. Current retail costs per gross addition dropped to a still staggeringly high $313. With churn rates up to 3.9% and costs remaining exceptionally high, it comes as no surprise that Clearwire has burned through $5.8 billion in free cash flow in just the past two years.

Keep in mind that this is absolutely a Clearwire issue, because other WiMAX providers have shown the ability to turn a profit, including Boingo Wireless (Nasdaq: WIFI  ) and even Alvarion (Nasdaq: ALVR  ) (though Alvarion hasn't turned a full-year profit since 2007). Based on data available before its 2007 IPO, Clearwire has yet to turn a profit in any form.

Finally, what discussion of Clearwire would be complete without discussing its massive $3.9 billion in debt? Sure, there are plenty of highly-levered telecoms in the sector, such as AT&T (NYSE: T  ) with 19 times more debt than cash, and Verizon (NYSE: VZ  ) with almost 8 times more debt than cash. But these companies have one thing Clearwire doesn't -- positive cash flow!

Clearwire currently needs $600 million to roll out its LTE network and another $300 million for its current WiMAX technology. Compound this with the $2.7 billion debt payment that comes due in 2015, and you have a recipe for disaster. Clearwire bonds are currently trading on the bond market at a large discount to face value, which indicates that other participants also think default seems likely. Based on the company's quarter-ending total of $254.7 million in cash and its current cash burn rate, it doesn't have enough money to make it through 2012. C'est la vie, Clearwire!

Now it's your turn to weigh in by voting in the following poll on whether or not you think Clearwire will be able to survive and thrive or whether it will join a long list of business failures. Also consider adding Clearwire to your free and personalized Watchlist to keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He does, however, have a hatred for Clearwire's mall kiosks. You can follow him on CAPS under the screen name TMFUltraLong. Motley Fool newsletter services have recommended buying shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that sends out shockwaves of transparency.

Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 19, 2011, at 10:36 PM, MattC69 wrote:

    Funny, I can't recall reading a Motley Fool article which has done other than bash this stock, so this "game" is hardly "new" on this siite...

    Yup, I own this stock, yup, I'm having trouble sitting down, and yup, like this site, Sprint does not waste any opportunity to beat this company up, but still I believe that good things will come to this company because of the management team and, if nothing else, the spectrum it has.

    I get it has no money, but I just can't see Sprint kicking it to BK and then picking up the spectrum in BK Court - not when AT&T is wiling to pay $39B for T-Mobile (maybe...) coz Sprint will get nada against everyone else who'll be bidding. Crazy really, given they could just buy out the remaining 46% and for another billion have their "Network Vision" over half completed in a matter of months,. but hey, this is Sprint we're talking about... They're not #3 for nothin'!!!!

  • Report this Comment On October 20, 2011, at 2:53 AM, edfizziwig wrote:

    When I see insider buying of the magnitude that John Stanton and certain Board Members have initiated over the last few months I see a managment that believes in the future of the company. These nay sayers should go back two months and reread the analytical and corporate comments coming forward. And, don't read between the lines. Clearwire has the management, the technical expertise and skills to take this company to new heights. The need is there, the spectrum is there and the product is there...Shorts should be cautious.

  • Report this Comment On October 20, 2011, at 9:10 AM, larrysd1 wrote:

    Motley I like your website but your wrong about this Co.There going to come smashing thru ! So maybe you can stop posting negative material now ! Thanks

  • Report this Comment On October 20, 2011, at 11:55 AM, cjmac136 wrote:

    Motley can always be counted on for the negatives on Clearwire, commentary that’s sometimes informative but rarely if ever insightful concerning this new wireless business. I have seen my CLWR investment cut in half, however I understand starting a new business to compete against some very hard- nosed players like AT&T and Verizon entails significant risk and requires time.

    As I see things, Clearwire has the dominate spectrum position at a frequency point where propagation limitations are offset by tower densities required for high volume data traffic. The network hardware required for an LTE overlay on the existing system is readily available and for less than either of the two mentioned competitors advertising budgets and could be implemented in months rather than years. The existing WiMAX network would make and excellent M2M infrastructure long term helping to avoid future LTE congestion and offer additional new growth. The problem that seems to overhang Clearwire’s relationship with Sprint is the sense of entitlement Sprint has toward controlling the decisions Clearwire makes, and maybe rightfully so since they did contribute a significant portion of Clearwires current spectrum holdings. However with an accelerating Q3 net subscriber growth of 1.9MM (about twice as many as each of much larger competitors) Clearwire should reach a positive cash flow by Q1 WITH the current WiMAX service.

    No doubt the cash crunch is hurting Clearwire, however cash can be found from spectrum sales, hosting, partnerships, vendors and yes even banks, now that their lap-dog rating agencies have effectively increased Clearwire lending rates to a point where they can get a much bigger piece of the potential future growth pie. What can’t be found or created is new spectrum, at least not without the complete reshuffling of current spectrum use, as seen by the not-so-capital-efficient Sprint wireless vision.

    I don’t know if Clearwire will remain a separate viable alternative to AT&T or Verizon, but it should survive in some form, although not likely with its very foolish majority share holder.

  • Report this Comment On October 21, 2011, at 2:35 AM, ruuud wrote:

    Being a re-seller of this product, I have lost appreciation for this company seeing how they constantly reduce commissions time and time again. But with recent changes that will be taking effect in November I can see the future of this company changing for the greater good and perhaps to the survival of this company.

    In an effort to save money this company has decided to no longer give out equipment on consignment. From what I understand they were losing millions on inventory issues.

    Reducing commissions to about 1/3 of what they normally pay to authorized retailers means more money in their pockets.

    Utilizing distributors of equipment has created whole new fire to add more doors that offer Clear's subscriber service on a new M2M image.

    I would only assume because of the new M2M product they will be making a big market push to reintroduce Clear. Which in my opinion is the biggest plus because I still meet people to this day that don't have a clue as to what Clear is or offers (thats after 2yrs in my market)

    Myself personally will never sell this product again. And I question the image that Clear will maintain. With the reduction in commissions, major retail locations (Such as mine) can not survive. And with questionable recruitment tactics of new retailers that will most likely just have this as another product to hang up on the shelf and not focus on. Also taking away territory's.

    Combine all that with an already poorly trained, outsourced customer service that lacks basic knowledge to help most customers... In case any of you don't know after a product is sold nothing can be done for a customer at a store. Everything must go through customer service after the sale.

    The actions of this company has proven its desperation and greed.

    its one thing to know a company's product and direction but I never read about the front line and I hope this will put prospective to anyone who might care about their investment.

    my shares will be up for grabs at about 2.50

  • Report this Comment On October 21, 2011, at 11:02 PM, Chesscrab wrote:

    Uh, regarding the statement about other WiMAX providers like Boingo making a profit...Boingo operates WiFi, not WiMAX. Hopefully the writer knows the difference...i.e., that WiFi uses unlicensed spectrum, does not support mobility, does not attempt to provide metropolitan coverage, has a range of 50-100 m max, etc. Clearwire WiMAX operates at 2.5 GHz (WiFi is at 2.4 or 5 GHz), and the network is completely different than WiFi. Just go to

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