Company Reports

Cogent’s results remain difficult to assess. Reported sales and profits have little meaning, as metrics for Sprint’s wireline business are now incorporated within Cogent’s legacy reporting lines. As a reminder, T-Mobile is paying Cogent $700 million over the next few years to take Sprint wireline, which was burning cash and seeing sales declines. Management remains enthusiastic about the opportunities it will have with the Sprint infrastructure and customer base, but in the near term, sales and EBITDA will be under pressure as Cogent abandons unattractive revenue and gradually realizes cost synergies.

Cogent provides internet and private network connections for enterprises, and it carries internet traffic for internet service providers, content producers, and other websites. Both businesses face challenges as technological advancements allow those functions to be performed at lower cost, but we think Cogent's strategy leaves it positioned to succeed.

Narrow-moat Cogent Communications' reported third-quarter results convey little meaning, as the firm is working through its very atypical acquisition of the Sprint wireline business from T-Mobile. Cogent has completely integrated the Sprint wireline financials into its results. Now it is quickly shedding a sizable portion of the $500 million in annual Sprint revenue it acquired, as much of this business is unprofitable and bleeding cash, which is why Cogent is receiving $700 million over the next four years to take on the albatross. For the next several quarters at least, investors will have to parse management’s commentary more than the quarterly results. Our long-term view, which is not nearly as enthusiastic as management’s regarding potential sales growth, is unchanged, as is our $70 fair value estimate.

Cogent provides internet and private network connections for enterprises, and it carries internet traffic for internet service providers, content producers, and other websites. Both businesses face challenges as technological advancements allow those functions to be performed at lower cost, but we think Cogent's strategy leaves it positioned to succeed.

The biggest source of volatility in Cogent’s second-quarter financial results was another reversal in how the firm will recognize the $700 million it is receiving from T-Mobile as part of Cogent’s Sprint wireline acquisition, which closed in May and led to a big noncash gain in the quarter while reducing the revenue we expected. Cogent’s legacy corporate business continues to struggle as corporate office attendance in the U.S. has yet to recover, and the legacy netcentric business remains strong. However, the new baseline for EBITDA margins appears to be higher than we anticipated after Cogent acquired the cash-burning Sprint wireline business. After adjusting our margin projections, we’re raising our fair value estimate to $70 from $65.

Cogent provides internet and private network connections for enterprises, and it carries internet traffic for internet service providers, content producers, and other websites. Both businesses face challenges as technological advancements allow those functions to be performed at lower cost, but we think Cogent's strategy leaves it positioned to succeed.

Cogent provides internet and private network connections for enterprises, and it carries internet traffic for internet service providers, content producers, and other websites. Both businesses face challenges as technological advancements allow those functions to be performed at lower cost, but we think Cogent's strategy leaves it positioned to succeed.

Narrow-moat Cogent had a disappointing first quarter, with its corporate business continuing to struggle and its netcentric business slowing a bit. Margins were also weak. However, the firm closed its deal with T-Mobile on May 1 to acquire Sprint's wireline business, and we think that business will have a much greater influence on Cogent's performance in the short and long term. If some of management's projections for stabilization and growth of the Sprint business come to fruition, Cogent has significant upside, but that business is currently burning cash and is in decline, so it carries risks even considering the $700 million T-Mobile is paying Cogent in the first couple of years to subsidize the business' losses. We don't anticipate major changes to our $65 fair value estimate after fully incorporating the Sprint transaction.

Cogent’s fourth quarter was disappointing, as its corporate customer base remained stalled, and the EBITDA margin was under pressure due primarily to inflationary costs. Also, Cogent now expects its acquisition of Sprint’s wireline business from T-Mobile—for which Cogent essentially will receive $700 million—to close in the second quarter. We expect the transaction will lead to more volatility and uncertainty in results, but it doesn't change our $65 fair value estimate.

Cogent provides internet and private network connections for enterprises, and it carries internet traffic for internet service providers, content producers, and other websites. Both businesses face challenges as technological advancements allow those functions to be performed at lower cost, but we think Cogent's strategy leaves it positioned to succeed.

Cogent had a strong third quarter, with the underlying business performing much better than the mildly disappointing headline financial numbers would imply. The most important thing, in our view, is that the firm grew its corporate customer base for the first time since the pandemic began in the first quarter of 2020. We had expected this to occur, but we think the market has been fearful of a continual decline in that business due to a work-from-home culture. The firm’s netcentric business remained strong but suffered from unfavorable currency exchange rates. In all, nothing in the quarter made us change our forecast or our $65 fair value estimate.

Cogent provides internet and private network connections for enterprises, and it carries internet traffic for internet service providers, content-producing companies, and other websites. Both businesses face challenges as technological advancements allow those functions to be performed at lower cost, but we think Cogent's strategy leaves it positioned to succeed.

Cogent has agreed to take T-Mobile’s money-losing wireline business off its hands in a complex transaction. While the acquired business is in rapid decline, we believe the acquisition can be a good deal for Cogent for two main reasons. First, Cogent has the structure and desire to support the services this business entails, whereas T-Mobile does not actively participate in these markets—it inherited the business from Sprint. We expect significant cost synergies and new sales opportunities as a result. Second, Cogent receives ownership of a substantial fiber network to support its existing business and mitigate some of the risk we believe is associated with the network leases it relies on. Cogent expects the deal to boost EBITDA and cash flow and to close by the end of 2023, but we’d like clearer details about the long-term obligations before proclaiming this deal a win. With the information we have, we are maintaining our $65 Cogent fair value estimate.

Cogent’s stock recently entered 4-star territory relative to our $65 fair value estimate. We suspect continuing weakness in corporate connections and the outlook for Cogent on the other side of the pandemic has made investors nervous, but we think the market is overly pessimistic.

Cogent provides internet and private network connections for enterprises, and it carries internet traffic for internet service providers, content-producing companies, and other websites. Both businesses face challenges as technological advancements allow those functions to be performed at lower cost, but we think Cogent's strategy leaves it positioned to succeed.

Cogent’s netcentric business, which thrived during the pandemic, has continued to slow the past several quarters, but its corporate business, which was hurt by the pandemic, has not yet turned a corner. The result in the second quarter was a disappointing top line. Cogent is nonetheless continuing to expand margins, and we expect the corporate business to return to material growth, even though a turn up in connections is taking longer than we thought. We're not making any changes to our forecast, and we’re maintaining our $65 fair value estimate.

After scheduling an earnings release and call for May 5, Cogent abruptly issued its earnings on April 29, while the earnings call remains scheduled for May 5. The firm announced CFO Sean Wallace will leave his role on May 6, and we suspect Cogent wanted to release first-quarter results concurrently to quell any fears that the CFO departure might mean the quarter would be ugly. Results were generally consistent with our expectations and are tracking our full-year forecast, but we’ll need to hear the call to learn how each of the firms two business lines are performing. We are maintaining our $65 fair value estimate and don’t expect it to change materially after we receive further color on the call.

Cogent provides Internet and private network connections for enterprises, and it carries Internet traffic for Internet service providers, content-producing companies, and other websites. Both businesses face challenges as technological advancements allow those functions to be performed at lower cost, but we think Cogent's strategy leaves it positioned to succeed.

Cogent’s fourth-quarter sales and EBITDA fell slightly below our projections. The firm’s corporate business, which made up about 60% of total revenue in 2021, remains sensitive to companies’ workforces working from home. The improving trends in corporate revenue took a step backward in the fourth quarter, and we expect the first quarter will also be pressured by omicron. The netcentric business remained the source of strength in the fourth quarter and throughout 2021, as it is driven by Internet traffic. We don’t expect office work to ever return to the pre-pandemic normal, but we think Cogent’s corporate business has bottomed and that the recent stock sell-off has left the firm undervalued relative to our $65 fair value estimate, which we are maintaining.

Cogent provides Internet and private network connections for enterprises, and it carries Internet traffic for Internet service providers, content-producing companies, and other websites. Both businesses face challenges as technological advancements allow those functions to be performed at lower cost, but we think Cogent's strategy leaves it positioned to succeed.