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Security: Dish Network Class A Shares
Website: dishwireless.com
As of Date: 10/23/2023
Closing Price: $4.76
Shares Outstanding: 533.8 MM Total // 295.4 MM Class A shares // 238.4 MM Class B shares
** Class A and Class B shares have the same economic interest but Class B shares each have 10 votes, versus 1 vote per Class A share.
Market Cap: $2.54 B
Shares Held by MA Fund: N/A
Most Recent Transaction: N/A
BUSINESS
Charlie Ergen and Jim DeFranco co-founded Echostar in Denver, Colorado, in 1980. Dish Network was spun off as it’s consumer brand in 1996, and is now a telecommunications company that provides direct-broadcast satellite television (DBS), consumer cellular service, and is a 5g network operator. Dish has been changing the way the world connects for over 40 years.
Dish’s core business is Pay TV with roughly 8.9 million subscribers (6.9M Dish TV, 2M Sling TV) and has been shedding customers due to competition and cord cutting. However, it remains a cash cow to the tune of $2.8B operating income in 2022. Dish also has a number of advantages over its competitors, including a strong brand, its own satellite fleet, and its own ground network. Using the Dupont ratio, Dish currently delivers 9% ROE. Even in the face of declining pay TV subscribers, the TTM net margin is 11%, dropping under 10% only once in the last five years.
Sensing shifts in how the world communicates, Dish began investing in Spectrum roughly 15 years ago. Dish then purchased Boost Mobile in 2020 via the T-Mobile/ Sprint merger. Importantly, the U.S. Government was looking to create the nation’s fourth major wireless carrier. Boost Mobile, a pre-pay service boasts 7.73M subscribers as of Q2 ‘23. Dish continues to expand its wireless offerings entering the post-pay market with Boost Infinite. Boost Infinite now offers plans starting at $25 a month via Amazon, combining the sales and marketing reach of the online-sales behemoth. Most recently Dish has released the most competitive iPhone 15 offer of any carrier via a no trade-in $60 a month plan. The company is bullish on increasing subscribers to 40M by 2025 going directly after the major carriers customer base.
Dish’s investment in Spectrum grew to $30B by 2021 and Dish began construction of the country’s first cloud native Open-RAN end-to-end 5G network. Remarkably, by 2023 Dish has built out this greenfield network to cover 70% of the U.S. population. The government has a vested interest in Dish surviving to stay competitive in the network wireless space. A network of this modernity and scale has not yet been rolled out anywhere globally. The network infrastructure is already built for future enterprise apps. Dish hopes to capture 20% of the market for enterprise 5g in the U.S., estimated to total $22B by 2032.
Finally, as part of this overall evolution and transition, Dish is also merging with Echostar - reuniting the two entities which Charlie Ergen broke apart almost 30 years ago.
MANAGEMENT
Co-founder and Chairman Charlie Ergen is a polarizing figure. He’s a maverick, gambler, mountain climber, and a leader with a bend don’t break mantra who will do whatever it takes to see victory. Always willing to take on the biggest players in whatever space he has entered Charlie is currently on a mission to disrupt the entire telco industry putting his multi-billion dollar fortune on the line in the process.
Recently Charlie displayed his business acumen in two keys ways. One, in negotiating an extension to purchase $3.6B in spectrum from T-Mobile, winning over the DOJ and the FCC judge. Second, facing tightening credit markets and in need of balance sheet flexibility, Charlie has chosen to re-merge Dish and Echostar of which he is the majority owner of both businesses. These are excellent examples of his ability to work with regulators, the competition, and come up with unexpected ways to deliver value.
VALUATION
We value Dish using a price-to-sales ratio (P/S) .17X and a price-to-earnings (P/E) 1.83X when comparing it to its larger competitors in the telco space. The average P/S multiple of the big three carriers which is 1.34X.
We estimate that the current stock price discounts a low single digit probability the new network will be a success. Where we differ with the market in that we believe the odds that Dish survives and its new network is an economic success are closer to 70-80%. We believe that because (1) Charlie Ergen won’t quit and his skill and ability to pull whatever lever to push this forward is the difference, (2) the regulators place a lot of importance in having a fourth competitor in the wireless market, the odds of Dish’s new network succeeding are higher than the market is discounting.
Due to his commitment, we believe the new network survives going out the next five years, at which point it is one of an oligopoly of wireless service providers and likely to be valued like it’s peers. Dish is building a new kind of network, and rather than predicting the value of the new features of the network, we take the simple default view that it will be able to functionally match the existing networks and assume that the valuation should mean revert to its peer group once its survival is more certain.
But we also know that there is additional potential in Dish’s 5G network infrastructure and we will be watching to see how that is productized and monetized by Dish. We look at this as being a free real option on the next generation of telecom infrastructure - getting the new infrastructure for the price of the old infrastructu.
RISKS
Inability to refinance upcoming maturities or make payments on time
Operational delays in rolling out new products and services / execution issues.
Slow to no enterprise network 5g adaptation
Any ill health or other untimely loss of Charlie Ergen as leader of the company
FUTURE
The merger process with Echostar should proceed smoothly.
Watch for Boost Infinite subscriber growth.
Monitor plans to repay or refinance maturities due in 24/25 totaling $5B and the April 2024 deadline for $3.6B spectrum purchase from T-Mobile.