NEW YORK, June 26, 2019 /PRNewswire/ -- Kerrisdale
Capital, a private investment manager, has published a report
explaining its short position in Tucows Inc. (NASDAQ: TCX), an
internet services and telecommunications company that consists of
two declining internet businesses and a nascent fiber business with
high capex requirements and unrealistic profit expectations.
Kerrisdale believes that Tucows will report a miss versus consensus
2019 EBITDA and that the stock is worth 50%+ less than the current
price.
Ting Mobile, the company's mobile virtual network operator
(MVNO) division, has witnessed subscriber declines since 2017,
driven by the entrance of well-capitalized cable operators like
Comcast (which operates Xfinity Mobile) and Charter. Given Ting
Mobile's lack of a triple play offering and subscale operations
compared to its much larger peers, Kerrisdale sees no end in sight
to customer losses. Additionally, If the Sprint/T-Mobile merger is
approved, Kerrisdale believes Tucows' MVNO business will have to
shift its network to another carrier like Verizon or AT&T,
which should trigger subscriber attrition and worse
pricing.
The company's domains segment is suffering from abysmal industry
growth. Given the highly commoditized product set of domain
registration companies, there is little to differentiate providers
other than price. With low growth, price competition, and potential
margin pressures from rising registration fees from Verisign, the
domains segment should command a low valuation multiple.
To distract investors from the dismal prospects of its legacy
divisions, Tucows is redeploying cash flow into its nascent fiber
segment, where it delivers home internet through fiber in selected
cities. Building a high-return fiber network is so challenging that
even Google and Verizon haven't succeeded and are scaling back. A
small operator like Tucows has little hope. Management's
assumptions are unachievable, and we expect Tucows will have higher
capex requirements, lower penetration rates at maturity, and profit
will come in much lower than expectations.
Combined, these businesses are not worth nearly the $730m they're being valued at by the market.
"The market is completely misvaluing this mix of low quality
businesses," said Sahm Adrangi, CIO
of Kerrisdale Capital. "Tucows' ill-fated adventure into fiber will
end badly, and the market is ascribing far too much value to this
highly speculative division that has destroyed so much capital in
the past for far larger peers."
Kerrisdale's full report can be found
at https://kerr.co/tcx.
Kerrisdale has a short position in shares of Tucows and stands
to benefit if its share price falls.
About Kerrisdale Capital
Kerrisdale Capital Management, LLC, is a fundamentally-oriented
investment manager that focuses on long-term value investments and
event-driven special situations.
Kerrisdale Capital Management, LLC is a member of the Financial
Industry Regulatory Authority, CRD number 160804.
Contact
Agnes Cao
Kerrisdale Capital
acao@kerrisdalecap.com
212-257-4385
Sahm Adrangi
Kerrisdale Capital
sadrangi@kerrisdalecap.com
212-792-9148
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SOURCE Kerrisdale Capital Management, LLC