Yesterday, Carl Vogel resigned as CEO of Charter Communications (Nasdaq: CHTR). The stock closed down over 6% on the news, and it's down 9% today in early trading, standing in stark contrast to how the market cheered for Scott Livengood's getting tossed out as CEO of Krispy Kreme Doughnuts (NYSE: KKD). Did the market still believe Vogel was the best guy to lead Charter, or did the stock decline because of added problems to an already difficult situation?
Vogel has a great deal of experience in the communications industry. He has worked for Liberty Media (NYSE: L), AT&T (NYSE: T) Broadband, and EchoStar (Nasdaq: DISH), giving him a well-rounded look at the environment. But despite his qualifications, Charter has had a rough time during his tenure. He has had to deal with a Securities and Exchange Commission investigation into inflating subscriber rates, a probe that led to three now-former executives pleading guilty to fraud and conspiracy charges. He's had to deal with a debt load of over $18 billion (trailing 12-month revenue is less than $5 billion), which the company notes is going to have to be refinanced.
I don't know what the market is thinking, but in my opinion, the stock fell because a bad situation just seems to be getting worse and worse. Losing a leader is always hard. But trying another turnaround in the midst of a fast-changing and extremely competitive environment is especially difficult. Unlike Comcast (Nasdaq: CMCSA), which has been rolling out new services continually, Charter has been trying to play catch-up with new products.
To further complicate matters, satellite-TV providers like EchoStar have been gaining share by signing up customers in rural areas. Unfortunately for Charter, it developed its cable network to serve those very same customers. So Charter is feeling the squeeze from its direct competition as well as from an alternative technology. It also doesn't help that Charter's customer service apparently leaves much to be desired, at least based on anecdotal evidence -- many of my friends have dropped Charter like a bad habit because of poor service.
In the press release, interim President and CEO Robert May said, "There's significant value embedded in Charter that can be -- and will be -- used for future growth and for the benefit of our customers and shareholders." So is Charter a value play or a value trap?
I am not completely convinced, but I am leaning toward "value trap." I admit that Charter's network is a valuable asset. But it's hard to say how valuable it could be, given the huge debt load and the uncertainty about growing revenues. Unhappy customers aren't going to pay more for new services if they aren't happy with their old ones. That spells trouble for Charter as it tries to bundle digital cable, video on demand, broadband, and voice-over-Internet protocol into one package. And without the ability to bundle effectively, Charter will continue to have trouble keeping customers. And it's hard to grow when customers are leaving. Maybe that's why short interest has been so high lately.
Fool contributor David Meier does not own shares in any of the companies mentioned.
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