Thanks for the write-up. The quality of posts here are among the highest I have seen.
Just to add to the dependency on ACP, the most recent 10K says "The SurgePhone and Torch Wireless business segment made up approximately 73% of total consolidated revenue in 2022. Revenues related to this business segment are 100% derived from programs administered by the Federal Communications Commission (FCC), and all funds related to these programs are received directly fromorganizations under the direction of the FCC".
Indeed, though they're trying to diversify sources of revenue (mainly via the store opportunity), it's pretty much a one-product company. The next few years are 'land-grab mode' until the market is saturated.
The ACP is part of the Bipartisan Infrastructure Law and is a permanent extension to the EBB program. There will always be the risk related to this program, but it has broad bipartisan support, and is a blip in terms of size compared to the overall budget. Also, I would say its politically pretty risky now to cut free internet to tens of millions of households. But still, its for now their main source of revenue.
It seems the ACP is a massive overhang, but that's because the funding could run out by the middle of next year (makes sense 1.56bn already spent on devices as of Jan 2023 and 600mn to be spent this year based on adding 500k users total per month) 5.5bn for the current 15.6mn users (as of Jan 2023) + (90mn*12 = 1.1bn) more for users this year currently 7.2bn in expenses this year, 1.6bn already spent on devices and 2.8bn spent on internet last year (thats 11.4 bn total) already out of the budget by this year end. Lets assume they don't add anymore users in 2024 with the current 14.2bn budget the program would last ~5/6 months into 2024 and run out of funds. Could you explain why you think they would deserve 7.5x EBITDA in that case and how you're thinking about that risk?
The ACP is part of the Bipartisan Infrastructure Law and is a permanent extension to the EBB program. The program will run out of money in 2024 and will need to be refunded. While there's of course a risk here, it would be a big political risk imo cutting off millions of households by closing a program that is a drop in the budget. Indeed, one could argue they could actually expand the program, let alone renew it. Fwiw, the ACP is getting marketed, a lot. Indeed, we are currently in the 'ACP Week of Action' (https://sites.ed.gov/hispanic-initiative/event/affordable-connectivity-program-acp-week-of-action/).
That said, until the funding becomes automatic, SURG won't get very high multiples. But keep in mind your 7.5x ebitda is based on ccs. SURG could earn $30-50m this year and double next year. I'll take 7x ebitda on these figs. Blue sky is ofc SURG catching a serious multiple (on eg automatic renewal mechanism of the program).
Thanks for the SURG update. Really interesting. Would like to know what you think of mgmt. Specifically regarding how promotional they are. Like, would you be surprised if "AI" is mentioned repeatedly in the next call ? ...if not already.
haha, no indeed, I would not be surprised. They're pretty opportunistic for that matter. Though that hasn't been the case in the 4-5 calls we had with the ceo; the focus was clearly on the core business without too much 'fluff'. Also, though we are naturally skeptical of promotional mgts, the ceo has been pretty straightforward with us re mistakes he made (like underestimating churn). But let's see, the next two quarters are important.
Great stuff, thanks for the response & the color. I like that he owns so much, just hopes he tones it down a little. Annoyed at myself for not buying the dip.
Thanks for the write-up. The quality of posts here are among the highest I have seen.
Just to add to the dependency on ACP, the most recent 10K says "The SurgePhone and Torch Wireless business segment made up approximately 73% of total consolidated revenue in 2022. Revenues related to this business segment are 100% derived from programs administered by the Federal Communications Commission (FCC), and all funds related to these programs are received directly fromorganizations under the direction of the FCC".
Indeed, though they're trying to diversify sources of revenue (mainly via the store opportunity), it's pretty much a one-product company. The next few years are 'land-grab mode' until the market is saturated.
The ACP is part of the Bipartisan Infrastructure Law and is a permanent extension to the EBB program. There will always be the risk related to this program, but it has broad bipartisan support, and is a blip in terms of size compared to the overall budget. Also, I would say its politically pretty risky now to cut free internet to tens of millions of households. But still, its for now their main source of revenue.
It seems the ACP is a massive overhang, but that's because the funding could run out by the middle of next year (makes sense 1.56bn already spent on devices as of Jan 2023 and 600mn to be spent this year based on adding 500k users total per month) 5.5bn for the current 15.6mn users (as of Jan 2023) + (90mn*12 = 1.1bn) more for users this year currently 7.2bn in expenses this year, 1.6bn already spent on devices and 2.8bn spent on internet last year (thats 11.4 bn total) already out of the budget by this year end. Lets assume they don't add anymore users in 2024 with the current 14.2bn budget the program would last ~5/6 months into 2024 and run out of funds. Could you explain why you think they would deserve 7.5x EBITDA in that case and how you're thinking about that risk?
The ACP is part of the Bipartisan Infrastructure Law and is a permanent extension to the EBB program. The program will run out of money in 2024 and will need to be refunded. While there's of course a risk here, it would be a big political risk imo cutting off millions of households by closing a program that is a drop in the budget. Indeed, one could argue they could actually expand the program, let alone renew it. Fwiw, the ACP is getting marketed, a lot. Indeed, we are currently in the 'ACP Week of Action' (https://sites.ed.gov/hispanic-initiative/event/affordable-connectivity-program-acp-week-of-action/).
That said, until the funding becomes automatic, SURG won't get very high multiples. But keep in mind your 7.5x ebitda is based on ccs. SURG could earn $30-50m this year and double next year. I'll take 7x ebitda on these figs. Blue sky is ofc SURG catching a serious multiple (on eg automatic renewal mechanism of the program).
Mace Security International, Inc. (MACE) Partners with SurgePays, Inc.
https://www.accesswire.com/749415/MaceR-Security-International-Inc-Partners-with-SurgePays-Inc
Thanks for the SURG update. Really interesting. Would like to know what you think of mgmt. Specifically regarding how promotional they are. Like, would you be surprised if "AI" is mentioned repeatedly in the next call ? ...if not already.
haha, no indeed, I would not be surprised. They're pretty opportunistic for that matter. Though that hasn't been the case in the 4-5 calls we had with the ceo; the focus was clearly on the core business without too much 'fluff'. Also, though we are naturally skeptical of promotional mgts, the ceo has been pretty straightforward with us re mistakes he made (like underestimating churn). But let's see, the next two quarters are important.
Great stuff, thanks for the response & the color. I like that he owns so much, just hopes he tones it down a little. Annoyed at myself for not buying the dip.