For three decades, the internet has unlocked new choices in everything from shopping and entertainment to education and work. When it comes to actually installing the internet at home, though, the choice has remained the same: pay up to the local cable or phone company.
Starry Group Holdings
(ticker: STRY) sees big opportunity in disrupting that stale dynamic. The company’s wireless service delivers high-speed home broadband connections with no involvement from a cable or phone network.
For Starry and cable-weary customers, the key ingredient is high capacity wireless spectrum, known as millimeter wave, or mmWave. Starry estimates there are 40 million potential U.S. households covered by its exclusive high-frequency spectrum. The speeds rival the fastest wired broadband connections.
For Starry investors, the business model should be particularly attractive. There’s no need to dig trenches and lay cables to millions of homes. Boston-based Starry designs and manufactures its own network equipment, including the antennas that beam its signal from base stations to receivers on the roofs of apartment buildings and single-family homes. The company’s antennas connect to the existing wiring in most buildings to deliver broadband service.
The downside is that mmWave signals don’t propagate very far, requiring a dense arrangement of antennas to ensure coverage. That’s still less costly, though, than digging trenches and laying cables. Starry estimates that it can build its networks at 1% of the cost of fiber with similar coverage.
“We’ve figured out a technological mousetrap that creates a very disruptive cost structure,” says CEO and founder Chet Kanojia, who holds supervoting shares that give him control of the company.
(TMUS) both offer wireless broadband nationwide that resembles Starry’s offerings.
(T) has a similar service in some areas. But the home broadband services of the three wireless companies share their 5G networks with mobile phones. That means speeds can be weighed down at certain times of the day by a logjam of nearby smartphone users.
|2021 Sales (mil):||$22.30|
|2026E Sales (bil):||$1.10|
|2021 Adj. Ebitda (mil):||-$98.70|
|2026E Adj. Ebitda (mil):||$519|
|Market Value (bil):||$1.60|
Starry’s transmissions, by contrast, occur over licensed spectrum in the 24GHz and 37GHz bands. Those frequencies are adjacent to wireless companies’ 5G spectrum; there’s no mobile service on the Starry network.
Starry says its entire network operates on the highest-capacity mmWave spectrum and notes that homes and buildings don’t move, ensuring consistent service quality.
Starry’s service starts at $50 a month for 200 megabits-per-second speeds, with no long-term contracts. Plans range up to gigabit speeds, rivaling the top offerings of cable and fiberoptic options at many locations.
To be sure, Starry’s business is still in its infancy. The company had only 63,000 subscribers at the end of 2021, in six U.S. cities. Starry says it has a waiting list of another 150,000 customers, and it forecasts it will have 1.4 million subscribers by 2026.
The company’s stock is even younger. Starry began trading on the New York Stock Exchange this past week, after completing a merger with a special-purpose acquisition company, or SPAC, called FirstMark Horizon Acquisition.
Starry projects having $1.1 billion in revenue and $519 million in adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, in 2026, for an adjusted Ebitda margin of close to 50%. That would be up from 2021 sales of $22.3 million and an adjusted Ebitda loss of $98.7 million.
For now, though, Starry’s stock is being held back by the general malaise surrounding the market for SPACs—which has little to do with company fundamentals.
SPAC shareholders have the option of redeeming their shares for a proportionate stake of the cash held in the SPAC’s trust—just over $10 per share in FirstMark Horizon’s case. With Starry’s SPAC shares trading below that trust value for months going into the merger vote, shareholders had an easy arbitrage opportunity: They could trade their SPAC shares for a quick cash profit once the merger closed. Some 91% of the SPAC investors took that route, rather than holding on to Starry shares after the merger.
For Starry, that meant fewer public shares and a smaller infusion of cash when it closed the merger on March 29. At the time the SPAC merger was agreed to in October, management was expecting $452 million of new cash to hit the balance sheet. Instead, proceeds were just $176 million, and almost all of that came from a follow-on deal known as a private investment in public equity, or PIPE, which included notable investors Tiger Global and Fidelity.
Starry may now opt to raise capital through debt to fund its growth—not exactly a foreign concept for asset-backed telecom companies. Kanojia says the company will update shareholders on its balance sheet plans when it next reports results in May.
At Starry’s recent price of $7.95 a share, the company has a market value of $1.3 billion.
(CABO), with 1.2 million subscribers and an adjusted Ebitda margin of 52%, has a market value of about $9 billion today. That suggests substantial upside for shares of Starry, especially once it gets some distance from its complicated SPAC origins.
Starry has a long growth story ahead of it. That has become a rarity in the world of telecom.
Write to Nicholas Jasinski at [email protected]