Investors get more impatient all the time. They dump a stock if the company's profit rises 40% inste...
Investors get more impatient all the time. They dump a stock if the company's profit rises 40% instead of the previous quarter's 50%.
But this creates a mystery: Why do these same folks continue to pay good money for the shares of cable-television, wireless-phone and entertainment companies that lose money year after year, with little or no black ink in sight?
Comcast, the third-largest cable television provider in the US, is a prime case.
Its day-to-day business has been forever unprofitable. Yet in the past five years, Comcast shares have easily outpaced indexes for the broad stock market and for broadcast-media stocks.
Investors now give Comcast a total market value of about $35bn. That's more than they think old reliable Colgate- Palmolive is worth, even though the toothpaste and deodorant company has shown a profit every year since 1923.
Cable TV companies never make money, partly because the companies take on so much debt.
The only good thing John Malone ever did for his Tele-Communications stockholders was to get AT&T to bid up the price of the cable company in 1999 and then buy it for $59.4bn as a means to sell local phone service.
Tracking Losses Wireless phone service is another longtime loser. McCaw Cellular Communications, the pioneer, was unprofitable when AT&T bought it in 1994.
Last year AT&T's wireless business lost $461m. Still, investors are so wild about red ink that both AT&T and Sprint have been able to market tracking shares that represent the economic interest in their wireless units.
AT&T Wireless Group now has a market value of about $59bn; Sprint Corp. (PCS Group), which lost $2.4bn in the 12 months through March, is worth about $56bn on the stock market. WorldCom's effort to buy Sprint (PCS) along with its parent company seemed doomed today because of antitrust objections in the US and Europe.
Investors also have been enamored of entertainment behemoths Time Warner and Viacom despite years of losses and only marginal profits in more recent quarters.
People who read People and those who let their kids watch MTV must see value in these outfits. Big Bucks America Online is actually trying to pay about $133bn in stock for Time Warner, thinking it can somehow get that company's journalism, movies, and music onto its internet service.
The goodwill charges from the acquisition would allow AOL, one of the few profitable Internet companies, to become unprofitable. These red ink companies will continue to carry the burden of big spending for years. Comcast plans $1.2bn in capital expenditures this year to improve its cable systems. AT&T has earmarked $4.1bn this year to enhance its wireless business.
Occasionally, investors seem to wake up. The AT&T shares Tele-Communications stockholders received were initially worth about $65. Last week, they traded at $33.19.
Still, the love affair with money losers continues. These companies are becoming entangled in each other's businesses, undoubtedly to ensure the red ink will flow on and on. Doesn't this seem particularly odd at a time when even the US government is showing a profit?
David Pauly in the New York newsroom
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
Senior Managers Regime
Interest rate outlook unchaged