Level 3 Shares Cheaper Than a Cup of Coffee

Level 3 Communications this morning reported a narrower-than-expected third-quarter net loss and revenue that — at $1.07 billion — was in line with analysts’ expectations. But even that wasn’t enough to satisfy investors, who have now pushed the share price below $1 to as low as 60 cents. You can now have a double shot of espresso from Starbucks or buy three shares of Level 3.
Jokes aside, Level 3 was indeed very cautious in outlining the future of its business, noting that the broader slowdown in the economy was resulting in longer sales cycles. This lukewarm outlook is terrifying for investors already concerned with company’s high level of debt and its ability to navigate the current credit crunch.
The concerns about Level 3 stem from the fact that the company pays close to $130 million in interest every quarter — that works out to roughly 13% of total revenue. They have about $587 million in cash, and they are still not cash flow positive. They burn cash at about $57 million a quarter. By that metric, company would have $363 million due in the Q3 2009. 
“The company remains confident that it has sufficient cash on hand to repay the remaining $305 million of September 2009 maturities,” the company noted in its news release. With debt hovering around $6.6 billion, the company would need to find a tight fiscal rope to make things work. When I spoke to the company recently, they said they weren’t worried about refinancing their debt. Level3 has been through tough times before, and if there is a silver lining on these dark clouds: company has the wherewithal to deal with any crisis. 
Notalby, Level 3 made certain comments in its third-quarter results release that don’t bode too well for video and other online media-related startups:

The Content Markets Group has experienced a decrease in sales to certain media and entertainment companies who may be dependent on external financing sources.

On the flip side, the big companies seem to like Level3’s CDN model vs. those of its competitors. Since it owns its network infrastructure, it can play the low-price game better than its rivals.

At the same time, the company has seen increased sales activity among larger media, entertainment and sports enterprises who seek to make more content available online.

Image courtesy of BigCharts.com.