Key Takeaways
- Liberty Broadband (LBRDK) is primarily a holding company, offering a levered, tax-efficient way to invest in Charter Communications (CHTR), but it consistently trades at a significant discount to its net asset value (NAV).
- The investment case hinges on two factors: the future performance of its main asset, Charter, and the potential for the substantial NAV discount (currently exceeding 30%) to narrow through corporate action or a sentiment shift.
- Charter Communications is grappling with intense competition from fixed wireless access (FWA) providers, leading to broadband subscriber losses and pressuring its stock, which in turn weighs heavily on LBRDK’s valuation.
- A recent, notable purchase of LBRDK shares by US Senator John Hickenlooper serves as a contrarian signal, suggesting that some see deep value in the complex structure despite the clear headwinds facing the cable industry.
Investing in Liberty Broadband Corporation requires a certain appreciation for financial architecture, as it is less an operating business and more a structured vehicle for owning a substantial piece of Charter Communications. The company’s recent appearance in disclosure filings, noting a purchase by US Senator John Hickenlooper valued at between $250,001 and $500,000 in May 2024, has drawn attention to what is an otherwise overlooked corner of the market. [1] This transaction is interesting not for what it implies about political insight, but for what it says about contrarian value investing in an industry currently beset by profound competitive challenges.
The Matryoshka Doll Structure
At its core, Liberty Broadband is a holding company. Its value is derived almost entirely from the assets it holds, rather than from any product it manufactures or service it directly provides to the public. The portfolio is dominated by two key assets: a significant equity stake in Charter Communications (CHTR), one of the largest cable and broadband providers in the United States, and full ownership of GCI, a telecommunications provider operating in the unique market of Alaska.
The persistent puzzle for analysts and investors is the discount at which Liberty Broadband trades relative to the underlying value of these assets. This is not a new phenomenon; holding companies often trade at a discount to their net asset value (NAV) due to factors like management fees, potential tax liabilities on asset sales, or a lack of direct control. In Liberty’s case, however, the discount has become particularly pronounced. A simplified calculation illustrates the point.
| Component | Approximate Value (USD) | Notes |
|---|---|---|
| Value of Charter (CHTR) Stake | $12.0 billion | Based on LBRDK’s ownership of ~43.7M shares of CHTR. |
| Value of GCI | $1.5 billion | Estimated value based on peer multiples. |
| LBRDK Net Debt | ($3.6 billion) | As of latest quarterly filings. [2] |
| Calculated Net Asset Value (NAV) | $9.9 billion | Total assets minus debt. |
| LBRDK Market Capitalisation | $6.8 billion | As of mid-2024. |
| Discount to NAV | ~31% | Represents a significant gap between market price and underlying asset value. |
This gap suggests that buying LBRDK stock is effectively buying Charter shares at a substantial markdown. The catch is that there is no guarantee this discount will ever close.
The Charter Conundrum
An investment in Liberty Broadband is, for all intents and purposes, a levered bet on Charter Communications. Unfortunately for shareholders, Charter has faced a turbulent period. The primary antagonist is fixed wireless access (FWA), a home internet solution offered by mobile network operators like T-Mobile and Verizon. FWA has proven to be a surprisingly effective competitor, offering “good enough” speeds at attractive price points, leading to a notable slowdown and even reversal in broadband subscriber growth for traditional cable firms. [3]
In its most recent quarterly report, Charter disclosed a net loss of 72,000 internet customers, a figure that spooked a market accustomed to decades of steady growth in that segment. [4] This competitive pressure, combined with the high capital expenditure required to upgrade its network to the new DOCSIS 4.0 standard, has weighed heavily on Charter’s stock price, which has fallen dramatically from its 2021 peaks. As Charter’s valuation has compressed, so too has Liberty Broadband’s.
The bull case for Charter rests on the long-term superiority of its hybrid fibre-coaxial network, its ability to bundle services (particularly its successful mobile offering), and the belief that the FWA threat will eventually abate as those networks reach capacity. For now, however, the narrative is one of defence, not offence.
A Contrarian Signal in a Sea of Pessimism
This brings us back to the politician’s purchase. In a market fixated on the competitive threats to cable, acquiring shares in a levered vehicle like Liberty Broadband is a deeply contrarian move. It implies a belief that either Charter is oversold, the NAV discount on LBRDK is unsustainably wide, or both. Liberty, steered by the famously shrewd John Malone, has a long history of creating shareholder value through complex financial engineering, including spin-offs, share repurchases, and asset swaps. An investor might be betting that some form of corporate action is on the horizon to address the yawning discount.
For an allocator, LBRDK presents a unique proposition. It is not a growth story in the conventional sense. Instead, it is a special situation equity, a value play that depends as much on financial structuring as it does on operational performance. The path to a positive return involves two primary catalysts: a stabilisation or recovery in Charter’s market position and stock price, or a corporate action by Liberty’s management to narrow the NAV discount. Without at least one of these, investors are left holding a discounted asset that could, in theory, stay discounted indefinitely. The recent insider activity may just be a small signal that the probability of a catalyst is higher than the market currently believes.
References
[1] Quiver Quantitative. (2024, June). Recent report shows that Sen. John W. Hickenlooper bought up to $500k worth of Liberty Broadband. Retrieved from Benzinga.
[2] Liberty Broadband Corporation. (2024). Investors: Financial Information. Retrieved from libertybroadband.com.
[3] Leichtman Research Group. (2024, May). Major Pay-TV Providers Lost About 1.7 Million Subscribers in 1Q 2024. Retrieved from leitchmanresearch.com.
[4] Charter Communications. (2024, April). Charter Announces First Quarter 2024 Results. Retrieved from ir.charter.com.
