Although the struggling cable industry hasn't been an investor favorite lately, one big cable operator is about to launch on the stock exchange: Altice USA, an offshoot of Luxembourg-based cable and internet/telephony provider Altice. If demand is strong enough, the company's IPO could rake in over $1.4 billion in proceeds. Here's a closer look at the issue.
Although Altice is fairly young, having been founded in 2001, it's become a major player in the cable and telecom segments. It did so by assertively buying assets in both fields, first on its home turf of Europe, and then in the United States. The company became more widely known to Americans when it struck a nearly $18 billion deal to buy prominent New York-based Cablevision in 2015.
Cablevision forms the bulk of Altice USA these days. The company's secondary major asset is an earlier acquisition, Suddenlink, a cable company with operations in the South and the Southwest.
These two units give Altice USA a good, if distant, geographical spread and make it the fourth largest cable company in America. It's eclipsed only by Comcast (NASDAQ:CMCSA), Charter Communications (NASDAQ:CHTR)-- which bulked up by acquiring Time Warner Cable not long ago -- and privately held Cox Communications.
Although the current form of Altice USA is unprofitable, having lost nearly $722 million last year, it has lately reduced that red ink. Its bottom line in the first three months of 2017 was a $76 million shortfall, considerably better than the $190 million-plus that it lost on a pro forma basis in the same period the previous year.
On the other hand, both revenue and total customer count grew by 1% across that stretch of time. In the latest reported quarter, the former came in at $2.3 billion, while the latter rose to over 4.9 million.
This Fool's take
Altice USA has wedged itself into an already-crowded field of cable players, so there's plenty of competition to battle against.
On top of that, there's cord-cutting. Every company in the cable segment is contending with this issue, which is why these days video subscriber counts are barely rising at all (in the case of Comcast) or declining (Charter Communications). Altice USA's pay-TV residential customer base shrank from over 3.6 million in the first three months of 2016, to 3.5 million in the same period of this year.
Although the broadband internet segment has been growing -- 12% year over year for Altice USA -- in terms of overall operations, it's not very big. In the first three months of this year it brought in just under $612 million. That's just over a quarter of total revenue for the period.
Some analysts speculate that Altice USA will use its freshly minted stock to purchase one or several smaller cable operators. Doing so might eventually lead to cost savings and other benefits, not to mention putting the company in a stronger position to compete against Comcast and Charter. At this point, though, that's rank speculation; besides, acquisitions in this business tend to be expensive and play out for a long time.
Considering that, I'd probably give Altice USA's new issue a pass. Perhaps the ambitious company will rise to the top of the cable heap, but it's too early to tell, and its core business is too challenging for comfort just now.
Nearly 46.6 million shares of Altice USA will be sold in the IPO, at a price of $27 to $31 apiece. They're scheduled to start trading on Thursday, June 22, on the New York Stock Exchange under the ticker symbol ATUS. The joint book-running managers of the issue include JPMorgan Chase unit J.P. Morgan, Citigroup, Morgan Stanley, and Goldman Sachs.
Altice USA, which Altice-related parties will still control after the IPO, will use its share of the proceeds from the IPO to retire debt. As of the end of March, the company's total indebtedness stood at slightly over $24 billion.