25 Comments

Summary:

Today should be a red-letter day for all tech-IPO aspirants, for today Wall Street proved that a loss making company can go public, raise over half-a-billion dollars in public market funds, and then get a market capitalization of over $4 billion. No, this is not an […]

y20080y2008001.gifToday should be a red-letter day for all tech-IPO aspirants, for today Wall Street proved that a loss making company can go public, raise over half-a-billion dollars in public market funds, and then get a market capitalization of over $4 billion.

No, this is not an old post being reposted, but instead it is about Clearwire’s (CLWR) initial public offering that added another $1.4 billion to telecom billionaire Craig McCaw’s already bulging pockets. Merrill Lynch, JP Morgan and Morgan Stanley underwrote Clearwire’s offering.

The company sold 24 million shares at $25 a share – or about $600 million in total. Nearly half of that money is actually going to AT&T that recently sold spectrum to Clearwire.

For those of you kids who don’t know Craig McCaw, here is a little refresher. The 57-year-old telecom maverick is 365th richest man in the world, according Forbes’ Billionaires’ List and in the past has started McCaw Cellular (sold to AT&T) and Nextel (Sold to Sprint.) Of course he has had his share of flops as well. The $1.4 billion is going to nicely pad his $2.1 billion net worth.

One of the reasons why the company is getting so much traction is because it is offering the ultra-trendy WiMAX service. It is viewed as the third option against Cable and DSL as a broadband pipe. I wouldn’t call their current service as broadband, but Kevin Martin, FCC Chairman would.

It is one of riskiest investments out there, but then I said the same thing about some of the telecom players from the last boom. I still think this is the biggest built-to-flip company since it will be years before it makes any money. The reason someone would want them is because they own spectrum.

As an ongoing concern, it is going to be a while before its more sensible investors can exhale, and that is why I think Kirkland, Washington-based company’s public market debut is quite a staggering feat: the company lost $284 million on revenues of $100 million in 2006. And that its current customer base is about 205,000 strong: 184,400 U.S. subscribers and 21,800 international subscribers.

Started by McCaw in October 2003, the company has generated sales of about $148 million and in the process has managed to lose about $456 million. In 2004 the company generated about $243,000 in revenues, or about $69 per subscriber (3,500 subscribers). In 2005, sales jumped to $135 per subscriber (62.3 K subscribers) and in 2006 that number is about $484 per subscriber (205K subscribers). Losses per subscriber have decreased from $9940 in 2004 to $2246 in 2005 to $1377 for 2006.

Even though the company seems to be moving in the right direction, it will be a while before it can actually get to the business of making money. Those losses are not scientific because they include the profits (or loss) from the equipment business that was flipped to Motorola recently.

Photo courtesy of via the Mike Milken gallery

You’re subscribed! If you like, you can update your settings

  1. I like the WiMAX technology… It remains to be seen if Qualcomm’s competing technology will displace it, but there are already some heavy hitting supporters behind it. I’m still waiting for free broadband in all the major cities. It seems like something they should provide as basic city infrastructure. Maybe they could devise some sort of pay-as-you-go system at first, with the revenues going towards municipal projects, like fixing that darn pothole on Main Street.

  2. Om great piece and especially for calling the kettle black or perhaps should I say red.

    Clearwire is analogous to XO Communications version 2 and Craig McCaw is laughing all the way to the bank again along with investment scam artists at Merrill Lynch, JP Morgan and Morgan Stanley.

  3. I just don’t get Clearwire at all. If you adjust the enterprise value for the cash they’re going to burn in 2007 you’re at 4 BILLION. This for a company that’s going to do 170 million in revenues in 2007 at most (I would think), how is this valuation reasonable? 1999 all over again? I understand discounted cash flow analysis, but seems there is alot of risk not being accounted for at 4 billion. If I’m not mistaken, they’re not even using WIMAX yet? I think it comes in small doses in 2008, and mobile WIMAX doesn’t come for a year after that? I’ve also been told their spectrum is worth a ton, but I think they’ve spent 650 million or so to acquire it, so have they really made 5x their money on the spectrum already? I kind of doubt it. And I dont think they own all of the spectrum anyways. The other thing I don’t get is the subscriber count, 200k today, going to 400k at the end of 2007? How can that support the current valuation. I’m sure this one is worth something, it’s certainly not like Vonage, but the current valuation doesn’t feel like it can be defended.

  4. TeesMyBody.com T-Shirts Thursday, March 8, 2007

    I agree with the above poster. And what is with all of these billion dollar buyouts recently? It’s like the late 90’s boom all over again.

    Bob Hasko
    http://www.TeesMyBody.com T-Shirts

  5. No, but it’s worth $2.5b ($4b – 1.5b in cash).

  6. BTW, it looks like Aruba is just about ready to go. Offering 8-9.2m shares at $8-12 = $680m valuation.

  7. My sincere condolences to the investors who heard the term WiMax and pulled out their checkbooks.

  8. This time… it’s different… :-P

  9. Nick Hawkins Friday, March 9, 2007

    I can’t wait for the inevitable Crash and Burn.

  10. WiMAX on 2.5Ghz spectrum is a non starter in the US NAtionwide market. Physics still applies regardless of how many $$Billions you got.
    Clearwire (and for that matter Mobile WiMAX)will need to wait until 700Mhz becomes available to begin to be successful.

    Not sure if the big Wall Street analysts are looking at the technology or the names of the big players entering the market-Intel/Moto etc.

    Jacomo

Comments have been disabled for this post