ValueWalk has learned that Kerrisdale’s big short bet is against DISH Network Corp (NASDAQ:DISH). The news was confirmed earlier this week but to protect sources, VW did not immediately report. Bloomberg News has just reported that DISH is rumored to be the short and now we are able to release what we have. This is the text from an email Kerrisdale sent to investors earlier this week.
Stay tuned for more to come.
To get you started on the research please see below an intro to the company and the thesis. The company is Dish Network. We think it’s worth 60% to 80% below the current price.
EDITOR’s NOTE – REDACTEDAnd then a draft of the report is attached. It’s actually being reworked to more closely match the video, so the newer version will be next week.
Editor’s note for several reasons we cannot post the full PDF although stay tuned for more coverage but below are excerpts from the 30 page document
Calling Charlie’s Bluff
In our previous reports on Globalstar and Straight Path, we challenged the market’s complacent belief that spectrum prices can only go up and that wireless carriers have a desperate, boundless need for ever more megahertz. The most influential promoter of this bogus notion – with tens of billions of dollars riding on its veracity – is DISH Network. Since 2008, DISH has accumulated a massive portfolio of spectrum licenses and convinced investors that, any day now, it would unveil a brilliant strategy to extract value from these assets, even as evidence mounted that no major counterparty was interested in paying DISH’s price.
Now, with an imminent new spectrum auction promising to drastically reduce benchmark price expectations, DISH is in the weakest position it’s been in for years: sitting on a warehouse full of overpriced inventory, devoid of interested customers, and – with regulatory deadlines looming – running out of time. Meanwhile, DISH’s core pay-TV business is likewise entering dire straits, with declining subscribers, strengthened competitors, and obvious secular problems only beginning to manifest. Overall, we believe that the fair value of DISH’s equity is [[40%]] lower the current stock price – and, in an adverse scenario, [[almost 85%]] lower.
Scrappy and entrepreneurial, DISH has always prided itself on its willingness to take outsized risks; as its founder, chairman, and CEO Charlie Ergen – a former professional gambler – said in 2005, “I like to bet a few hands and bet them big.” After achieving great success building the second-largest satellite-TV operator in the US, DISH has watched its earnings flatline for a decade, a victim of consumers’ broadening array of entertainment choices and the rising importance of broadband internet connections, which cable and phone companies can offer but DISH largely cannot. Casting about for a way out of this strategic morass, DISH hit upon wireless spectrum.
Initially focused on the concept of a mobile TV service, DISH’s spectrum ambitions have become grander yet vaguer over time, with empty talk of “multiple options” taking the place of a concrete plan. But as DISH has continued to bet big on this single hand – culminating in its widely criticized hijacking of the recent AWS-3 spectrum auction, which earned it the ire of the FCC, Congress, and the wireless industry – it hasn’t noticed that the other players have stepped away from the game. Already armed with large reserves of un- and under-utilized spectrum, combined with better options for cheap capacity enhancement in congested areas, major carriers like AT&T and Verizon now gain less and less from incremental bandwidth – a simple case of diminishing marginal returns. DISH may put on a show of confidence, but carriers are calling its bluff, and DISH shareholders will learn that sometimes, when you bet big, you lose.
Combining the consensus view of the value of DISH’s TV business with our band-by-band analysis of the value of its spectrum portfolio, we arrive at an equity fair value of [[$28]] per share, [[43%]] below the current stock price. In a less probable but still quite plausible adverse scenario, where DISH loses all but its Band 66 spectrum as a result of missed buildout deadlines, suffers continued subscriber losses in its pay-TV business, and experiences further margin contraction, fair value drops down to just [[$7]] per share.
Such price targets may seem hard to swallow; DISH’s swagger alone has convinced many that, no matter how much it seems like there’s no real plan, everything will somehow work out anyway. But, considered dispassionately, DISH’s current strategic direction was always a dangerous longshot: levering up a slowly decaying business to double and triple down on an illiquid, highly specialized, highly regulated, limited-life, non-cash-flowing asset with only two to three plausible buyers. DISH has outlived many skeptics over the years, but, in investing as in gambling, there’s such a thing as pressing your luck.
DISH Network’s VP of Corporate Communications, Robert Toevs, told ValueWalk:
We understand Kerrisdale is shopping a negative report on DISH and has shorted our stock in an attempt to make a short-term gain while DISH is in an FCC-mandated quiet period. We will continue to manage the business for the long-term benefit of our shareholders as we have done over the last 35 years.