Disruptive technologies come in many forms. Sometimes the disruption comes in the form of new technologies or, in other cases, it can be a new business model. However, in each situation the disruption causes incumbents to lose market share.
In the case of FTNW, they are bringing edge computing and broadband access & services to larger offices and residential buildings. This is leading edge and the future of connectivity. We are particularly excited about this because, FTNW not only has a compelling business model, it will severely disrupt the incumbent internet service providers such as Comcast and AT&T; for that, we are eternally grateful!
What does FTE Networks do exactly? They bring internet access and edge computing directly to larger office and residential buildings. Instead of renters purchasing their own connectivity, landlords can provide gigabyte connectivity (with associated services) at a similar costs to traditional vendors.
The result is that renters no longer need to establish accounts with ISPs, instead, once they enter their lease, they have full connectivity as part of the package. Meanwhile, the access they get is gigabyte; much faster than the 100mbs offered by the broadband companies. And, they have associated services that make the offering more compelling.
For landlords, they not only have a compelling service that differentiates their building from others, but FTE splits revenues with them. Which means this is profitable for landlords. It’s truly a win/win situation for landlords and renters. With the losers being the traditional broadband providers; YEAH!!!
We’ll dig deeper into FTNW over time, but I’ll mention briefly that this company is trading at around 1.5X 2018 EBITDA, with a double digit growth rate (that should increase). Based on the compelling business model and inexpensive valuation, we have added this to our Tailwinds Select Portfolio.
As is our philosophy, we have added FTNW at an average weighting of the 15 names in the portfolio. To come up with the funds to do so, we have used cash that we had from the sale of MARK, and we are selling 3DS.
We have decided to sell 3DS for two reasons. First off, we are limited to 15 names and needed to pick one. The reason we picked 3DS is that, with the addition of ITUS to the portfolio, we have two diagnostic companies competing in the same space. In this case, we decided to stick with ITUS due to its stronger balance sheet.
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