Will Healy, The Motley Fool
4 min read
In This Article:
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Lumen will sell its mass markets fiber business to AT&T for $5.75 billion.
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The telecom will likely use the proceeds to reduce debt and invest in its network.
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The question for investors is whether that move will draw more investors to Lumen stock.
Telecom specialist Lumen Technologies (NYSE: LUMN) just announced the sale of its mass-market fiber business to AT&T for $5.75 billion. That move continues the transformation which began last summer when it partnered with Microsoft to leverage its existing network to strengthen connectivity among Microsoft's data centers. It has also agreed to provide similar services to Amazon and Meta Platforms.
The sale of the mass markets fiber business seems to confirm that Lumen is pivoting toward business and away from the consumer market. The question for investors is whether that deal will boost Lumen's stock over the long term.
According to CEO Kate Johnson, the company will receive net proceeds of $4.8 billion. Lumen can use those funds to reduce its debt or support its growing need to increase its capital expenditures as the company tries to reinvent itself from what had been a declining wireline telco business.
Still, one has to assume Lumen will focus on debt reduction at some level. As of the first quarter of 2025, it holds $17.3 billion in long-term debt. The company's book value is only $289 million, so that liability has put tremendous strain on the company's balance sheet.
Moreover, the company has to build what it calls a "backbone" for artificial intelligence (AI) to serve its enterprise customers. To that end, Lumen plans to spend $4.1 billion to $4.3 billion in capex this year, presumably to help build that AI backbone. That is up 30% from the $3.2 billion in spending in 2024 but should enable the company to meet the needs of its new customers.
Nonetheless, investors may be right to question how much the deal helps Lumen as an investment. So far, the pivot toward enterprise has not boosted the company's financials. In the first quarter of 2025, revenue dropped 3% year over year to $3.2 billion. Although that is an improvement from the 10% drop in revenue in all of 2024, it still represents a decline.
Despite a net loss of $201 million, Lumen generated $354 million in free cash flow in Q1. Unfortunately, Lumen expects $700 million to $900 million in free cash flow in 2025, down from $1.4 billion in 2024. However, free cash flow will fall because of the increase in capex spending, not poor financial performance.
