Over the last six months, Liberty Broadband’s shares have sunk to $64.70, producing a disappointing 19.6% loss - a stark contrast to the S&P 500’s 8.6% gain. This may have investors wondering how to approach the situation.
Is now the time to buy Liberty Broadband, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Liberty Broadband Not Exciting?
Even with the cheaper entry price, we don't have much confidence in Liberty Broadband. Here are three reasons there are better opportunities than LBRDK and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within business services, a stretched historical view may miss new innovations or demand cycles. Liberty Broadband’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.1% over the last two years was well below its five-year trend.
2. Cash Burn Ignites Concerns
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
While Liberty Broadband posted positive free cash flow this quarter, the broader story hasn’t been so clean. Liberty Broadband’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 16.5%, meaning it lit $16.54 of cash on fire for every $100 in revenue.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Liberty Broadband burned through $49 million of cash over the last year, and its $3.27 billion of debt exceeds the $180 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Liberty Broadband’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Liberty Broadband until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
Liberty Broadband isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 51.7× forward EV-to-EBITDA (or $64.70 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere. We’d suggest looking at one of our top software and edge computing picks.
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