{ "docId": "019dd923-622c-750b-8b98-2cdb791571f2", "docSlug": "b5e9ae4f10b0", "documentTitle": "Lumen Technologies (LUMN)", "authorId": "53_Kerrisdale_Capital", "authorName": "Kerrisdale Capital", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2024-08-15 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 9, "pageCount": 22, "prevPage": 8, "nextPage": 10, "slideType": "villain_critique", "function": "expose_gap", "density": "overcrowded", "nDataPoints": 5, "notes": "Includes two external quotes used to undermine the company's narrative.", "elementsJson": [ "paragraph", "quote_block" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-2cdb791571f2/9", "deckHref": "/decks/019dd923-622c-750b-8b98-2cdb791571f2", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-2cdb791571f2.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-2cdb791571f2#slide-9", "components": [ { "bbox": null, "kind": "callout", "text": "We argue $5bn in custom networks contracts is a defensive “back to basics” maneuver – an acknowledgement that Lumen’s ambition to turn more into a cloudified “techco” isn’t gaining traction and its core business remains selling dumb pipes.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-25b7-709e-b8c0-00d3c06e5408", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.045, "w": 0.766, "x": 0.117, "y": 0.155 }, "kind": "paragraph", "text": "To retain customer contract values and compete successfully, Lumen has turned to partnering with players like Zoom, Palo Alto, Fortinet, and Cisco Webex, reselling their products at a mark-up (~20-30% in most cases).", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "0ee6e1a1-fa9e-46bb-b871-8f41a119780d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.045, "w": 0.766, "x": 0.117, "y": 0.092 }, "kind": "paragraph", "text": "According to the executives, despite significant investment in SG&A and R&D, Lumen's internally developed software solutions are inferior versus offerings from leading tech companies who possess larger R&D budgets and innovate at a faster pace.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "246b1570-42f0-464a-b939-c405ee6ba5c1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.058, "w": 0.766, "x": 0.117, "y": 0.391 }, "kind": "paragraph", "text": "While wavelengths and dark fiber are likely infrastructure bright spots, DIA is suffering the consequences of strategic decisions made in recent years. Selling EMEA and LatAm operations succeeded in simplifying operations and raising cash but hurt the company's once differentiated customer value proposition.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "92870e02-1221-4d5f-b8e6-08eaa4718253", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.058, "w": 0.766, "x": 0.117, "y": 0.252 }, "kind": "paragraph", "text": "Revenue stability can only materialize if \"Grow\" reverses recent trends and reaccelerates, but this appears unlikely. Given its balance sheet, Lumen is not in position to make sizable increases in investment necessary to develop compelling new software applications.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c31877e5-a27e-46cc-9c83-7e1c32ebb5f5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.032, "w": 0.766, "x": 0.117, "y": 0.574 }, "kind": "paragraph", "text": "We think investors who believe a few hundred million in cash liquidity provides enough runway to address these significant structural issues fail to grasp the severity of the growth problem.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c7a062af-9643-4c0b-a02f-923895140521", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.016, "w": 0.375, "x": 0.117, "y": 0.738 }, "kind": "quote", "text": "\"The $5bn deal is about funding, not AI growth\"", "attrs": null, "subkind": "pull-quote", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "85453d23-0c99-40e9-a6a0-8ffedfdc9257", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.045, "w": 0.766, "x": 0.117, "y": 0.813 }, "kind": "quote", "text": "\"Lumen actually regretted selling fiber to us. I had conversations with two previous CEOs who both said they enabled us to compete with them and they wish they had never sold us fiber...\"", "attrs": null, "subkind": "testimonial", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "e3ce4f40-94ba-447f-b00b-a91a6337469f", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "\"The $5bn deal is about funding, not AI growth\" — Bank of America Global Research, August 8, 2024; \"Lumen actually regretted selling fiber to us. I had conversations with two previous CEOs who both said they enabled us to compete with them and they wish they had never sold us fiber...For the past 20 years, Lumen has been very reluctant to sell fiber. I think now, based on their liquidity profile, they are selling that.\" — Dave Schaeffer, CEO Cogent Communications, Oppenheimer Technology, Internet, and Communications Conference, August 12, 2024", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-25b7-709e-b8c0-069baaf484a7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.024, "w": 0.335, "x": 0.117, "y": 0.698 }, "kind": "title", "text": "Custom Networks Economics 101", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "cc144d12-0c63-454d-aa4a-241e3d4f1639", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 9, "from": 6, "beatId": "def054c1-737a-4489-8757-88ca0494fb13", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Problem (Identify pain)", "beatSlug": "problem-agitate-solution-problem-identify-pain", "evidence": "Slides 6-9 highlight Lumen's operational and financial challenges", "position": 0, "confidence": 0.8, "parentBeatName": "Complication", "parentBeatSlug": "complication" } ], "loops": [ { "to": 9, "from": 6, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "fdbef985-7a89-48b2-beca-37b487f2f55c", "evidence": "Slides 6-9 imply that not selling or short-selling Lumen could lead to significant losses", "position": 0, "objective": "Highlight the cost of inaction for Lumen's investors", "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point", "confidence": 0.7, "description": "Quantify what happens if the audience does nothing" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }