At the risk of sounding ignorant, which I am unabashedly so, I have a few questions/observations: Would it be fair to say that, given what are still low cash flow/earnings multiples, you foresee a potential precipitous decline in the next few--like three--years that puts the potential return of invested capital (at today's prices) at risk? Do you think that demand for live video curated sales content will evaporate as the monetization of personalities/brands via avenues like Instagram and Tik Tok proliferates (which, in my opinion, implies a pivot in the current behavior of Qurate's prized 'core' customers)? Am I correct in assuming by your statements about dtv that you also believe that virtual mvpds--e.g. YoutubeTV, Sling, Fubo--will never become ubiquitous? In the event that one or more do, do you think that they would present a higher hurdle to paid programming placement than traditional linear tv? Just on an n of 1 basis, the digital streaming world seems so disaggregated right now. While the disaggregated nature of streaming combined with households transitioning from cable puts Qurate's challenges in relief, and I don't think one should rely on uncertain externalities benefitting the business, the ice cube just seems so far from melting at this point that I have trouble seeing a downside that involves negative returns in the next couple years (lost opportunity cost seems given if you have a bunch of other great bets). Has Qurate ever broken down QxH viewership by linear/streaming? I've looked at a couple presentations and statements but haven't seen it. If they've never done it then perhaps the ommission of such a statistic says something.
Adam - If any part of this was ignorant, consider us in the same boat (which may be part of the reason why I'm giving this one a relatively short leash). I think you're asking the right questions.
First, yes - I do think there's a scenario where FCF declines meaningfully over the next few years, particularly off of the higher base they've been gifted as a result of the pandemic (IMO).
Second, also yes - I have my doubts about the viability and adoption of vMVPD's long-term. While they've improved on some parts of a traditional MVPD, the reality is that they have not, and really cannot, address the core problem (programming costs, best content moving to DTC, etc.).
Third, your comment on viewership by channel (linear / streaming) is spot on. As far as I know, they've never given a clear breakdown of these metrics (or at least not one that suggests to me that streaming can be the saving grace). I think the reality is that the "best customer" nature of this business, and the demographics of those customers, is what has made it manageable in the early stages of the decline of pay-TV. My question would be how that plays out if the bundle itself implodes, which seems like a real risk to me over the next few years.
In summary, I think you're asking the right questions, and I'm honestly not sure that I have the answers. Over time, if I'm able to piece some of these things together, I may revisit the idea. For now, I'm comfortable stepping to the sidelines and accepting a nice short-term winner.
Thank you for the thoughtful responses Alex. I think the next quarter's results could foreshadow how many of the 'core' customers they can retain from the pandemic catalyst. I'm not sure that even another upward trending quarter offers any indication as to how well management can navigate to digital though. The (speculative) paradox of this situation is that I could see them issuing more dividends if they have more strong quarter(s) but don't have the utmost confidence in their ability to transition to digital.
FWIW I think this is the right call. A good business, but one that is in structural decline given linear tv dependence and user demographics. Which is why it was available at such an attractive valuation vs other Covid beneficiaries. But as the world opens up, I'm not sure you want to continue owning this for the long term. I could easily be wrong and management is great, but lots of headwinds long term.
I looked at it last spring but couldn't get comfortable that it was a business I wanted to own for 5+ years. Clearly a mistake! Bought the prefs instead as a good cash place holder.
At the risk of sounding ignorant, which I am unabashedly so, I have a few questions/observations: Would it be fair to say that, given what are still low cash flow/earnings multiples, you foresee a potential precipitous decline in the next few--like three--years that puts the potential return of invested capital (at today's prices) at risk? Do you think that demand for live video curated sales content will evaporate as the monetization of personalities/brands via avenues like Instagram and Tik Tok proliferates (which, in my opinion, implies a pivot in the current behavior of Qurate's prized 'core' customers)? Am I correct in assuming by your statements about dtv that you also believe that virtual mvpds--e.g. YoutubeTV, Sling, Fubo--will never become ubiquitous? In the event that one or more do, do you think that they would present a higher hurdle to paid programming placement than traditional linear tv? Just on an n of 1 basis, the digital streaming world seems so disaggregated right now. While the disaggregated nature of streaming combined with households transitioning from cable puts Qurate's challenges in relief, and I don't think one should rely on uncertain externalities benefitting the business, the ice cube just seems so far from melting at this point that I have trouble seeing a downside that involves negative returns in the next couple years (lost opportunity cost seems given if you have a bunch of other great bets). Has Qurate ever broken down QxH viewership by linear/streaming? I've looked at a couple presentations and statements but haven't seen it. If they've never done it then perhaps the ommission of such a statistic says something.
Adam - If any part of this was ignorant, consider us in the same boat (which may be part of the reason why I'm giving this one a relatively short leash). I think you're asking the right questions.
First, yes - I do think there's a scenario where FCF declines meaningfully over the next few years, particularly off of the higher base they've been gifted as a result of the pandemic (IMO).
Second, also yes - I have my doubts about the viability and adoption of vMVPD's long-term. While they've improved on some parts of a traditional MVPD, the reality is that they have not, and really cannot, address the core problem (programming costs, best content moving to DTC, etc.).
Third, your comment on viewership by channel (linear / streaming) is spot on. As far as I know, they've never given a clear breakdown of these metrics (or at least not one that suggests to me that streaming can be the saving grace). I think the reality is that the "best customer" nature of this business, and the demographics of those customers, is what has made it manageable in the early stages of the decline of pay-TV. My question would be how that plays out if the bundle itself implodes, which seems like a real risk to me over the next few years.
In summary, I think you're asking the right questions, and I'm honestly not sure that I have the answers. Over time, if I'm able to piece some of these things together, I may revisit the idea. For now, I'm comfortable stepping to the sidelines and accepting a nice short-term winner.
Hope that helps Adam! Have a great day.
Thank you for the thoughtful responses Alex. I think the next quarter's results could foreshadow how many of the 'core' customers they can retain from the pandemic catalyst. I'm not sure that even another upward trending quarter offers any indication as to how well management can navigate to digital though. The (speculative) paradox of this situation is that I could see them issuing more dividends if they have more strong quarter(s) but don't have the utmost confidence in their ability to transition to digital.
FWIW I think this is the right call. A good business, but one that is in structural decline given linear tv dependence and user demographics. Which is why it was available at such an attractive valuation vs other Covid beneficiaries. But as the world opens up, I'm not sure you want to continue owning this for the long term. I could easily be wrong and management is great, but lots of headwinds long term.
I looked at it last spring but couldn't get comfortable that it was a business I wanted to own for 5+ years. Clearly a mistake! Bought the prefs instead as a good cash place holder.
George - Like you, I could easily end up being wrong as well. Very interested to see how this one plays out over the next few years. Have a great day!