What do you do about Spark?SPARK NEW ZEALAND LTD NPVNZX_DLY:SPKBlackBull_MarketsThis analysis is provided by Eden Bradfeld at BlackBull Research—sign up for their Substack to receive the latest market insights straight to your inbox. Ah, Spark. Shocker of a result on Friday — losing in all segments (save their IoT business, which is negligible anyway). Since Jolie Hodson became CEO in 2019 the stock has decreased roughly 40%. In the last year the stock is down ~52%. The company has hocked off their tower business, closed their haywired “Spark Sports” streaming business, and seen its market share be consistently eroded by competitors. On Friday around ~$1 billion of market value was eroded. The company also spent ~$350mn on buying back shares at around ~$5 last March (buy high, sell low? Wall Street Bets logic). It’s extraordinary to see a company that once held a dominant market position fall so flat on its face. I remember growing up with Telecom (Spark’s former name) — it was everywhere. Since becoming Spark (and Chorus uncoupling), the company has been on a dubious path — I’m not sure what got into their heads with the idea of “Spark Sport” but it was always a bizarre idea, unrelated to their core business and in a marketplace that famously does not make much money in NZ (look at TVNZ and Mediaworks…). I also recall Spark spending a lot of time talking about “Internet of Things”. You may recall the hype of IoT a few years ago — it reminds me of a summary of a Black Mirror episode — “what if your grandma ran on batteries, innit". Think fridges and dishwashers and phones all communicating with one another. Shock horror — nobody needs their fridge to be smart; they need it to keep their food cold. Obviously Internet of Things was a bit of a bust. All of this is to ask: what are the management of Spark on? How do they come out with this stuff? Their 2023 3-year strategy offers us some clues: The sale of the TowerCo meant that the company spent a lot of those proceeds (~350mn) on buying back shares are at much higher price than the shares trade for now. Ideally management should buy the stock at a discount to intrinsic value and raise capital when the stock trades above intrinsic value. When mgmt and the board buy back shares at a high price relative to what the market’s value of the stock is, it brings into question their ability to assess intrinsic value. We have already talked about the ill-advised decision to do sport. I’m unsure if this constitutes as “effective portfolio management”. I do not know what digital identity means, or what “multi-access edge compute” means. The data centre portfolio is very small relative to Spark’s competitors, and Amazon is set to open a large data centre in NZ, as are Microsoft. Microsoft is a much bigger company and so is Amazon, so they have much more advantages of scale, by orders of magnitude. I have made a helpful chart to help visualise this. I am not sure how Spark means to meaningfully compete with such scale. The rest of Spark’s “strategy” can be seen here¹, which is long on words and the feel-good factor, but short on actual, quantifiable metrics. I mean, there’s this: H1 2025 EBITDAI² was down 15.5%, at $448mn. The dividend declared was down 1c. The only part of the strategy that seems to be working is growing (reducing) the dividend in line with FCF growth (unfortunately, FCF growth is negative on FY24). So what to do? Jolie has now been CEO and presided over value destruction — as have the board of Spark. Here’s Jolie, quoted in the Herald, on whether she’d be making any changes: Will we see any executive changes?, the Herald asked chief executive Jolie Hodson. “No, there are no changes I’ve got to share with you. Our focus is on making sure we’re executing at pace.” And is she confident in her own position? “My focus is 100% on making sure Spark is doing the things that we need to do to address the markets we’re in, but also the actions that we said we’d take and that’s what I’ll be focussed on doing,” Hodson said. But Spark hasn’t really done thing “things they need to do”, have they? On most metrics they’re down and losing market share! And they’re not executing at pace either — MSFT and AMZN are executing data centres at pace — Spark is but a footnote. This is the part of the piece where I ask if Jolie and her chair, Justine Smyth, perhaps they ought to consider new jobs? In most markets around the world shareholders would be braying for some blood. It’s hard to imagine “business as usual” when so much value has been destroyed. There’s still value in Spark — Infratil acquired One/Vodafone for 6.9x EV/EBITDA, slightly above where Spark trades (~6.5x). I have little faith in the current board and management to create more value, which leads to the question of whether the company could be acquired, chopped up, and value unlocked. This is always a harder question than it seems — telecom companies and broadband assets don’t tend to be valued particularly highly or sell like hotcakes these days — look at Comcast’s recent results. You’d need an acquirer with a strong stomach and more importantly, a plan. Work to be done.