Big Gap in Valuations Puts Private Companies in Broadband Catbird Seat

There has always been a valuation gap between public cable and private communication operators that offer internet, cable and phone services. In this report, we attempt to quantify the valuation gap and the factors driving it, and why it’s important to rural operators. We also weigh in on where we think valuations are headed. Key findings include:

• The valuation gap between private communication companies – which operate mostly in rural and tier three cities – and public cable companies is the widest we’ve ever seen.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) valuations for private companies are over two times higher than the average valuation for the main publicly traded cable companies.
• Several factors are driving this gap, including public equity market dynamics, competition from the large telcos, an attractive competitive environment and growth prospects for private investors, and federal broadband funding.
• Given the headwinds facing publicly traded cable operators and the tailwinds for their private counterparts, the valuation gap will likely persist for the foreseeable future.