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
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
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
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
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.
