Ah, “Company X” — that’s an old teaser chestnut. I think I prefer when folks like the Stansberry copywriters come up with wholly invented terms for investments, but I must admit that the old “Company X” term still has some mystery and appeal.
This ad turns out to be for a firm we’ve looked at before, though not for some time, and it’s had some serious ups and downs in its brief life as a public company.
The ad is for editor Eric Dickson’s Untapped Wealth over at Trinity Research, and he says that “You can make money in any market condition at any time if you follow these four simple rules. This is what I have done for you by uncovering COMPANY X.”
Those rules? The company needs to have:
- Sustainable competitive advantage (what Warren Buffett calls a “moat”).
- Customers who are in love with the product(s).
- First mover advantage.
- Seasoned management and backers.
Nothing shocking in that list — I think it’s what you’ll find from must fundamental investors, and certainly I’ve heard similar from Buffett, from the Motley Fool boys, and from many others.
This “Company X” apparently meets all these requirements as follows:
- With “massive growth rate and plans to rollout a nationwide WiMax network, they’ve beaten the competition to the punch” (that’s the “competitive advantage”)
- Customers “have to” love them (they haven’t had much of a chance to do so yet) … “this disruptive technology will change the internet forever, allowing people to wirelessly connect anywhere-any time.”
- On first mover advantage: “They’ve cornered the market, plain and simple. It’s like investing in Standard Oil at the turn of the century.”
- And on management and backing: “Their CEO sold his previous company to AT&T for $11.5 billion and is considered a pioneer in this industry” and also has “backing” from Google, Intel, and Motorola (though I don’t think too many are bragging about being associated with Motorola these days).
So … enough for you? Of course. The Thinkolator needn’t even be turned up to “ice chop” to get the solution for us, which is …
This is the big and ambitious WiMax company from Craig McCaw, who is indeed a wireless pioneer. And they have made deals with Google, and have had a famous on again, off again relationship with Sprint that aims to build up the nationwide WiMax network that everyone would like to have. Intel has invested in the Sprint/Clearwire joint project.
If you’re curious about WiMax more generally, there was a pretty decent writeup at the Motley Fool recently.
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The stock has had a ridiculous ride — a tough spring as everyone wondered how much it would cost to build up this nationwide network, then ebullient huzzahs as the deal with Sprint was initially announced, and more collapses as Sprint slinked away into a corner, then optimism when the Google agreement was announced, and pessimism as the market fell.
I don’t know if Clearwire is going to end up working — I’d be happy to see someone build up a nationwide competitor to the Verizon/AT&T two-headed behemoth that controls so much of wireless data access (in practice, WiMax works about the same as having a wireless data card through one of the cell phone companies). The idea is that Clearwire/Sprint’s new network will speed wireless broadband adoption, and bring competition to cut prices, and maybe be better than existing offerings (or cover a broader land area).
The challenges, as I see them? Huge, amazingly huge costs. It’s going to take a long time for Clearwire to get profitable, as far as I can tell, and who knows if this new plan to build a joint venture with Sprint and with Intel backing will work (Intel wants WiMax because they can sell WiMax chips — Verizon and AT&T use a different standard for their next generation wireless broadband that bypasses Intel). I’ve seen written that Sprint’s goal of building a national network would have cost $5 billion, and it sounds like the new Intel backing is for $2 billion. Clearwire and Sprint both own valuable spectrum, but the infrastructure won’t come cheap, or all that quickly as far as I can tell.
I’ve written about Clearwire before — this has been talked about as a “holy grail” WiMax company teaser for some time, both by Untapped Wealth and by others. If they do manage to build up a network, will they make money by competing with AT&T and Verizon? So far, that hasn’t been Sprint’s strength, but McCaw definitely brings some reputation to bear on that goal … though his reputation was built years ago in the wild west of wireless, and he has been pretty quiet lately. If you want to know about how I felt about Clearwire back in April, when I first saw Untapped Wealth tease it as the “golden egg” enabler of a new “gilded age,” the writeup is here.
Don’t know if Clearwire will be a great investment or not — if I think of this as a telecom company I have a very hard time justifying the valuation … if I think of it as a nascent game-changing titan with a national network that has a potential monopoly on a popular wireless standard, it sounds a little more promising. My concern is that the telecom comparison seems more apt to me at the moment, but I could easily be wrong.
What do you think?