Cogent Communications is one of the remaining players in the Telecom Texas Hold’em. In fact, they have a seat at the final table. Congrats. (For those unfamiliar with my Texas Hold’em Series, please review “I don’t get the Texas Hold’em Posts” for context.)
This week and next, I am using Cogent as a backdrop for a discussion about stock price management, Intrinsic Value, and the importance of accurate cash flow forecasting. I thought it would be helpful to talk a bit about Cogent in the meantime.
I could write a couple weeks’ of daily posts about how Cogent earned its spot at the final table. Perhaps at some point I will. For now, I will refer to a recently published Forbes article titled Telecom Knockdown. Telecom crowd–read this article! This is especially true for the Zayo crew. It provides insights that are valuable for the go-forward telecom industry. It also gives a good sense of the telecom meltdown dynamics.
What type of player is Cogent in the Telecom Texas Hold’em? Aggressive is an understatement. Unpredictable also comes to mind. They will definitely play their hand very differently than many others at the table.
A few quick facts. Cogent acquired 13 companies during the meltdown. The most significant were PSINet and Allied Riser. PSINet was one of the 4 original Internet backbones, and exploiting their peering infrastructure is at the heart of Cogent’s go-to-market strategy. Internet transit is its primary product. Though Cogent has invested only $500M directly, the companies it acquired had consumed at least 10 times this amount. In my running total as to how much has been spent by the Texas Hold’em players and their predecessors, I will put $5B next to Cogent.
Cogent has 41,000 fiber route miles, including quite a bit in Europe. Its run rate revenue is approximately $220M per year and annualized EBITDA is $66M (excluding $16M of non-cash stock options). Both revenue and EBITDA are growing rapidly. The enterprise value of Cogent is $550M—this has dropped a ton over the past year but it is still respectable in this difficult stock market. My guess is they will see a substantial lift in enterprise value when the stock market firms up.
Love ‘em or hate ‘em, you have to admire how Cogent took advantage of the meltdown of Telecom.
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