SURG spent a bunch of time on it this weekend
The numbers are likely real and the economics are compelling. They basically are either break even on day 1 or make a decent profit on ACP, but then have an incremental monthly revenue of $30 at $15 gross margin as long as the customer sticks around. I did some spreadsheet calculations assuming a 12% discount rate and 90% retention, and the NPV of a customer is somewhere between $450 and $500. Do the math on that based on whatever your assumption is on their current customer count.
The problem is the ACP would need to be re-funded as it runs out of cash next year. I believe there is some verification that the service is being used so fraud seems like the lesser concern. The question is whether the program will just vanish when it runs out of cash sometime in 2024.
It’s more welfare statism than socialism like the lifeline program which has been around for almost 40 years.
SURG itself seems to have accidentally found itself at the right place at the right time with the existing in’s to bodegas and convenience stores in poor areas. Their competitors are having roaming salespeople travel from town to town setting up tents and getting 50 bucks a sign up. SURG for some of their sign ups is paying store operators $12.
Their historic business is awful, disjointed, low margin, and in my opinion not worth much although not necessarily scammy. This is a binary bet on the ACP sticking around. If it does say hello to 30 bucks a share If they can execute at all. If not it’s at least a 50% haircut.
Ideologically I’m opposed to this. I’m not opposed to making money in the world as it exists rather than the one I would like. In a nutshell the outcome here is all a function of watching the politics closely. If I thought this was a lock to continue on like say Medicaid I’d be loading the boat.
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