Connectivity providers always “suffer” from lower market valuations than do software and internet-related app providers. As a practical matter, that makes it hard for connectivity providers to use their stock currency to buy higher-valued assets. And, of course, lower valuations make every unit of earnings less valuable than for some other industries.
Consider that enterprise value to EBITDA ratios for app providers are at least double what they are for connectivity providers. Where cable TV firms might have an EV/EBITDA ratio of about seven, while “telecom services” have a ratio less than six, and mobile firms garner a ratio close to nine, software segments have ratios from 11 to 21.
Looking at price to sales ratios tells the same story.
That remained true in 2022. “Telecom services” earned an EV/EBITDA ratio of 6.6. Information services garnered a 25.8 ratio; software a 32.7 ratio; internet software a 23 ratio.
As a management professor once told us, if one has a choice, pick a high-growth industry to work in, rather than a slow-growth industry. High growth tends to be associated with higher equity multiples, more opportunities and higher wages.
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