The Sunday Brief

Connecting technology, telecommunications, and the internet

Value Creation – Long-term charts, Fab Five vs. Telco Top Five (April 29)

by | Apr 30, 2022 | TSB

Below is the spreadsheet that details the long-term (2018-YTD 2022) equity market value gains for the Fab Five and the Telco Top Five. Please note that we have not updated the final share counts for these ten stocks to Q1 buybacks are not reflected in the totals. They will be updated by the next report and in next week’s Brief.

Another very tough week for the Fab Five as each of them announced earnings this week. Three impressed (Microsoft, Apple, and Facebook) while Google was soft and Microsoft was downright dismal. Overall, the Fab Five lost an incremental $610 billion in value this week. On the bright side, it’s highly likely that many of them will be active in repurchasing shares given their strong cash positions (we will cover changes in cash next week, but each of the Fab Five continues to be net debt negative, and cash in a high inflation environment needs to be put to work).

One thing we track is how much of 2021’s gains have been clawed back in 2022. To date, Microsoft, Apple, and Google have held on to part of 2021’s gains (52%, 48%, and 54% respectively as of Friday’s close), while Amazon and Facebook have given all of the 2021 gains back (and then some). Facebook has given back all of 2020 and 2021’s gains, to be exact, while Amazon continued to be well above ($340+ billion) their 1/1/2020 (pre-pandemic) market cap.

As we will discuss in next week’s Brief, the issue is slower than expected growth (as opposed to shrinkage). The recovery cycle in these situations tends to be solved in quarters, versus years. And, should the regulatory environment allow, lower valuations across the board allows larger companies with healthy balance sheets to acquire weaker competitors. This will certainly be tougher with the current administration, but the Fab Five will certainly try.

The legacy cable part of the Telco Top Five had a very bad week. Comcast and Charter posted broadband growth, but it was less than expected. Comcast’s equity market capitalization is back to pre-pandemic levels, and Charter is down 47%+ since their August 30, 2021 all-time high. More on mobile strength next Sunday, but we expect more cooperation among cable, not less, in the coming weeks and months.

Where this leaves smaller telcos is an interesting question. Lumen, Consolidated, and Frontier are at different places in their turnaround stories. Altice is still in the doghouse, but there are legitimate questions on how T-Mobile’s fixed wireless foray will impact the Suddenlink side of Altice as well as Mediacom and Cable One.

Meanwhile, interest rates hover near 3% (still historically low), GDP is negative, and inflation is going to be elevated for some time (intermediate inflation takes a while to work through the system). When the dust settles, the real question will center around relative market share and market capitalizations.

More next week. Spreadsheet below. Please send comments and suggestions to jim@pattersonadvice.com.

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