CoreSite acquisition presents capital allocation test
The speakers presented a mixed view on AMT's $10.4 billion CoreSite acquisition, noting its high initial price but strong subsequent operational growth.
The argument
The guest argued that paying 27x EBITDA for CoreSite in 2021 was expensive and added $2.5 billion in goodwill to a hard-asset balance sheet. However, subsequent growth has brought the effective run-rate multiple down to 17x EBITDA, showing decent integration progress.
The thesis, stress-tested
✓ What validates it
- ✓CoreSite revenue growth accelerating beyond the 8% CAGR
- ✓Data center EBITDA margin expanding further from 53%
▸ Risks discussed
- ▸Data center overcapacity or pricing pressure
- ▸Impairment of the $2.5 billion in goodwill if growth slows
Hear it yourself
"So people know that I'm a big fan of Netflix and it's a holding in our intrinsic value portfolio. And so one observation I've had from that love affair with Netflix is how churn can fluctuate based on one off events for subscription based businesses. And sometimes people simply subscribe to watch a show or a sporting event and then unsubscribe, and that's one type of problem. But then you also get these factors that are just totally outside of your control that drive churn. And so we saw that from Netflix back in 2022, in response to Russia's invasion of Ukraine and the sanctions on Russia, Netflix lost all of its subscribers overnight."
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