Business

Know the Business

Charter is a regional-monopoly broadband utility, not a media company. The economic engine is recurring fees from 30M+ Internet/mobile customers riding a sunk-cost coax-fiber plant — extraordinary unit margins (41% adj. EBITDA, 24% operating) but currently shrinking on the customer side as fiber overbuild and fixed-wireless access erode the moat. The market is pricing terminal decline (5.8x EV/EBITDA, ~6x P/FCF, stock down 55% over twelve months); the un-priced lever is the 2025–2028 capex cliff from $11.7B to under $8B and the pending Cox/Liberty Broadband transactions that more than double scale.

1. How This Business Actually Works

Charter is a toll booth on the last mile. Capital was spent decades ago to lay coax/fiber past 58 million homes; everything since is a recurring monthly bill against a fixed plant. About 89% of revenue is monthly subscription fees for Internet, mobile, video and voice — and within that, Internet alone is now $23.8B (43% of revenue) with mobile at $3.8B growing 22%. The economics that matter: each new subscriber drops mostly to EBITDA because the cable already runs past their door, and each lost subscriber takes high-margin contribution with it.

Internet is the profit engine. Video is a $13.7B revenue stream that is shrinking 9% a year as customers cord-cut — but it is largely a pass-through (programming costs of $8.8B), so the EBITDA loss is a fraction of the revenue loss. Mobile is an MVNO on Verizon's network (T-Mobile added in 2026 for business): Charter pays a wholesale cost per gig but offloads ~90% of traffic onto its own WiFi, turning what looks like a thin-margin reseller business into something profitable that meaningfully reduces broadband churn.

The bottleneck is the coax plant capacity, and that is exactly what management is rebuilding. Through 2027, Charter is upgrading to 1.2/1.8 GHz spectrum and DOCSIS 4.0 to deliver symmetrical multi-gig speeds — the answer to fiber overbuilders. Plus a $7.7B-and-counting rural construction initiative that has activated 1.3M passings (mostly subsidised by RDOF/BEAD grants) at infrastructure-style returns. These two programmes are why capex hit 21% of revenue in 2025 and why it is set to fall to ~14% by 2028.

2. The Playing Field

Charter sits in a strange middle: it has the highest revenue concentration in pure broadband economics of any U.S. peer, yet trades at the lowest EV/EBITDA and lowest market cap. The relevant peer set is not "media" but the four other companies fighting for the U.S. connectivity dollar — plus Altice as the cautionary tale of what happens when a levered cable operator loses subscribers without a balance sheet to defend itself.

The peer table reveals three things. First, Charter has the highest capex intensity of any peer (21% vs. 9–17%) because of the network evolution + rural build — a temporary penalty, not a structural one. Second, leverage is an outlier at 4.2x net debt / EBITDA versus 2.3–2.5x for the other four; this is a deliberate LBO-style capital structure that Charter has run for a decade and pays for via $4.9B annualised interest. Third, on EBITDA margin Charter trails T-Mobile, AT&T, Verizon — but on a "broadband-only" basis it is industry-best, since the other three are diluted by lower-margin wireless device sales and Verizon's mature wireline telephony book.

The right comparator on the cable side is Comcast, and Charter looks similar on margin (41.5% vs. 29.8% — Comcast diluted by NBCU/Sky/Theme Parks) but trades at a discount on every multiple. Altice, with 4x the leverage on a deteriorating book, illustrates exactly what the market fears Charter is becoming.

3. Is This Business Cyclical?

Cable broadband is defensive on the demand side and procyclical on the capex side. Customers don't cancel Internet in a recession — they cancel video. Revenue per residential customer has been remarkably stable at $118–119/month for years, and total revenue has been within ±0.6% for three years running while every other large U.S. industry has had real cyclicality. That stability is the asset.

Note the COVID years: revenue accelerated through 2020–2022 because everyone needed home broadband, and operating income roughly tripled from 2018 to 2022. That was the cyclical upside — what cable operators usually look like in a real recession. The decline since 2023 isn't a recession; it's a competitive cycle (fiber overbuild + fixed-wireless launches + ACP subsidy expiration).

The cycle hits in three places:

• Capex is highly cyclical and management-controlled. 2025 is the peak; FY2026 capex guided to $11.4B, then steps down to ~$8B by 2028 as RDOF/network evolution roll off. This is a $3.5–4B/year FCF tailwind starting in 2027 — about $28 of FCF per share.
• Subscriber growth is in a bear cycle right now. Internet customers fell 393K in 2025; video down 255K. Q4'25 net Internet adds were -119K (better than -174K in Q4'24). Management is "not projecting broadband relationship growth" in 2026 — a candid admission this isn't fixed yet.
• Working capital + advertising are the only true cyclical revenue lines. Political advertising added ~$300M in even years (2024 helped, 2026 should help, 2025 was a hole).

4. The Metrics That Actually Matter

Forget P/E and forget revenue growth. The five things that drive Charter's value:

The reason these matter more than usual ratios: Charter's accounting depreciation ($8.7B) lags cash capex ($11.7B), so reported earnings understate cash available to shareholders during the build phase. Reported EPS of $36.21 looks generous against price ~$172, but the right thing to look at is the ~$5B FCF on a ~$22B equity market cap = 18.9% FCF yield. That number is screaming distress; the question for the analyst is whether it's correct.

5. What Is This Business Worth?

The right valuation lens is normalised post-build FCF per share, not P/E and not EBITDA multiples in isolation. Charter is a single economic engine — broadband-led converged connectivity — so a sum-of-the-parts is not the right framework. What is hidden by the consolidated income statement is the gap between today's investing cycle (peak capex, sub losses) and the steady-state cash machine that will exist in 2028 if the subscriber base stops bleeding.

Binder Error: Set operations can only apply to expressions with the same number of result columns

A back-of-envelope. EBITDA $22.7B, currently growing low single digits. Apply 7x EV/EBITDA (in line with mature U.S. telco) = $159B EV; subtract $95B net debt = ~$64B equity, or ~$500/share. Apply the current 5.8x = ~$132B EV, ~$37B equity, ~$290/share. Today's price implies ~5.5x — i.e., a multiple lower than Comcast's diluted media business, lower than AT&T's deteriorating wireline book, and roughly in line with Altice (the distressed comp). The market is saying Charter terminal-decays.

The question to underwrite is therefore narrow: can the post-Cox combined entity hold its broadband customer base flat? If yes, normalised FCF of $7–9B against a $22B equity cap is investable. If no, the multiple is right and the cash flow shrinks faster than the deleveraging.

6. What I'd Tell a Young Analyst

Three things. One: stop watching revenue, watch net Internet adds and ARPU. Revenue is mechanical noise from video declines and political advertising; the real signal is whether each quarter's broadband net-add print is moving toward zero. Q4'25 was -119K vs. -174K — that's the trajectory that matters. Two: model the capex cliff explicitly. Most consensus models assume capex stays elevated; management has been very specific about $11.4B → ~$8B by 2028. If you believe the subscriber base stabilises, apply the cliff, and FCF doubles to ~$10B — at which point the buyback math against a ~$22B equity cap is extraordinary. Three: the Cox/Liberty deals are the swing factor on cap structure, not the operating story. They simplify the share count, they add scale, but the thesis is won or lost on whether converged connectivity (Internet + mobile + WiFi) can fight DOCSIS 4.0 + bundle pricing back to net-add positive. If you find yourself debating media or content strategy here, you've drifted off the actual question.

What would change the thesis: bullish if 2026 broadband adds turn positive; bearish if they don't and capex stays sticky into 2027. Watch the quarterly trending schedule, not the press release.