Here is the latest from TJ...
IMO...
The History of John M. and Greg M. is they would rather pay interest than Taxes.
I don't have a clue wrt the Qurate tax situation.
TJ makes some solid points wrt the business.
BUT
Given at least 6 legal teams and consultants ...
I just do not see this being the walk in the park T.J. makes it out to be.
Tell-Me-What-To-Do SyndromeOr, Why You Don't Need Good "Numbers" To Win
Great comments by all. You didn’t go after each other’s throats. Bravo.
The DTL. One Last TimeA quick word on the DTL one last time—with a little self-defense—since I don’t think I can convince the naysayers on this. The question is not whether the DTL is a real liability. It is a real liability. The question is whether or not QVC has the assets to cover that liability when/if it comes due.
And I showed very clearly that they do have the assets to cover it. This isn’t up for debate. I actually know what I’m talking about here. It is a fact that the DTL isn’t a massive risk, because they have tax assets and tax strategies in place to cover it. And their past 10-Ks and presentations prove that this is true. This isn’t conjecture.
But because the market does not understand the exchangeables, they can’t help but view it as a concern. Complexity and lack of understanding often become a pretext for negativity, which is great for me. Knowing something the market doesn’t is how you get an edge.
I find it interesting that people will admit they’re not experts with these kinds of tax issues while simultaneously saying the DTL is a major risk that stifles investment value in QVCGA. That is dangerous territory. If you don’t know, then you don’t know. This is like me saying I can’t play chess, then lecturing Magnus Carlsen about how to play. If you don’t understand the tax issues, the best response is to move on. But instead, many have chosen to verbalize their disagreement. There are many stocks out there that I don’t understand. I spend zero minutes thinking about them or talking to others about them, because I’m trying to stay out of my circle of incompetence.
On another note, one comment made mention of how various Wall Street analysts view the DTL as debt.
And maybe they should view it that way! But that only tells half the story.
It’s debt that carries 0% interest. And there are other assets on the balance sheet available to pay it off. That’s the crux of it.
For the avoidance of doubt, every time the exchangeables DTL goes up (not for timing differences), there is an offsetting asset that can be used to deal with that DTL. Either you get cash from minimized taxes, or you get an asset as a carryover to offset the future liability. Therefore, to say future DTL growth is a risk is kind of silly.
Future DTL growth means you’re either getting a net-zero impact (a DTA offsetting a DTL) or interest-free financing from the government. To use interest-free debt to pay down interest-bearing debt is extremely valuable. But people frame it as a negative?
I don’t understand how you can possibly see that as negative.
Anyway, my investment thesis in QVCGA doesn’t hinge on taxes.
But taxes are a hinge for many of those who hold the bear argument, and that is what I’ve been refuting. When people say that QVC has a DTL it can’t pay, and then I show them they’re wrong, that doesn’t mean that taxes are the core of my argument. I just see people saying that I’m making a mistake because there’s this big DTL that’s a major risk, and I know they’re wrong. It’s not a risk.
Liability ManagementFirst, if it does happen, it’s not happening in an LME. It will only happen in a BK. Under Delaware law, the Board can’t just eliminate the commons without an amendment to the charter or some kind of merger. In either case, the common shareholders have to vote for it. And under Article IX of the Certificate of Incorporation, a supermajority vote is required for these kinds of changes, which is a stricter standard than vanilla Delaware law (simple majority). There is an exception to this: if 75% of the board is in favor, then it goes back to a simple majority. Even with the exception (which I don’t think will happen), I don’t see even half of shareholders accepting this outcome. It just doesn’t happen. And as far as I know, there’s no precedent for common shareholders choosing to vote themselves into oblivion. In other words, the bondholders cannot outflank shareholders out of court.
So if you’re saying the commons will be wiped out, BK is the only option for this scenario. Given the liquidity that QVC has, bankruptcy at this stage will only happen if it’s voluntary.
So think about this. If the bondholders want the equity, they need to hold out until Q4 of 2026 for a BK. Why would they do this?
If these bondholders, like everyone else, believe that QVC is a “shitco” in secular decline—and based on market prices, they probably do—then why would they take equity in a company they think is in free fall and bleeding? Why hold out for a BK down the road, which will be costly and reduce recovery, when QVC has cash you can get today?
To make matters worse, when QVC withdrew an extra $1 billion from the revolver, they diluted the bondholders’ recovery prospects. Before that withdrawal, bondholders had 53% of outstanding QVC senior debt. Now they only have 43%. So even if you believe there are a ton of distressed buyers out there banking on a bankruptcy, there is a consortium of banks that have joined forces and can dilute recovery for these distressed shops.
But it can get even worse! I’m not sure if y’all know this, but the credit agreement allows for even more incremental borrowing—billions more. Yes, QVC has nearly maxed out the revolver, but there is room in the agreement for banks to shell out more money to QVC if they choose. And there is nothing the bondholders can do about it.
Yeah, bondholders would be pari passu with that new debt, but so what? Every additional borrowed dollar dilutes bondholders’ recovery share in BK and increases the banks’ recovery share.
If you’re a bondholder, do you want to take that risk and wait it out?
And when you pair this backdrop with a coercive tender offer at a premium, that comes with consent solicitations that strip bondholders of all rights, including being subordinated, who wouldn’t take that deal? The alternative sucks!
And if you think I’m wrong, and QVC will do a voluntary BK, I don’t think you know the situation or the management. Let’s look at Greg Maffei, who himself owns common shares, who has nearly $2 billion in liquidity at his disposal (with contractual ability to get even more), who has recently given RSUs to his CEO and a ton to lower-level employees, who has over a year until the revolver comes due, who was given the reins of QVC from John Malone—and John Malone is still a major stockholder.
Why would Maffei just bend over, give up, and willfully hand the company over to the bondholders in bankruptcy when he has oodles of better options? Any other CEO, and I’d think that is possible. Greg Maffei has never been like that. He’s as relentless as they come.
To make matters more interesting, and I’ve written about this before, Greg also owns P shares, and Delaware law is very clear that when the board has a conflict of interest between the commons and preferreds, the commons win. Greg has all of the legal ammunition here to favor the A shares in this, because if he favors the Ps, the courts would likely call this self-interested conduct. He’d be usurping his fiduciary responsibility to line his own pockets.
And again, the preferred stock can’t just take all the equity without a vote of approval from the commons. And the common holders aren’t going to agree to that. With $260 million of cash and only a $70 million valuation on the preferred stock, there is zero reason to dilute when you can just give them a carrot in the form of cash—cash far in excess of the current market price. And under the Certificate of Designations, only 50% of preferred holders have to agree to that deal to make it happen for all P holders.
So when you look at the liquidity that QVC has at each level of the stack, I don’t see anything herculean about cutting the debt load and keeping the A shares intact. In fact, that solution is the one that makes the most sense.
Then What?I received a good comment from Brian H, saying that even if an LME happens, then what?
Fair question.
As is typical with LMEs, the revolver would be extended as a part of the LME. I take that as self-evident, but I never mentioned it explicitly because it seemed obvious. I think it’s a false narrative to assume that an LME happens and there’s no extension. Given where the bonds trade today and the amount of liquidity, overall leverage can be reduced dramatically. This reduces risk for the banks, and depending on how much of the bonds tender, they’ll have all or nearly all of the senior debt without having to share seniority with bondholders. An LME paired with an extension makes the most sense and is quite standard.
But ultimately, I don’t think that’s Brian’s main point.
I don’t think that’s anyone’s main point.
Let’s be honest. The disagreement with me on QVC has nothing to do with taxes. It has nothing to do with LMEs. It has nothing to do with preferred stock.
The main issue everybody has is that QVC is falling apart. There is no juice left in the squeeze. It’s a dying business with no future prospects to speak of. It’s going the way of Sears, so who cares about a stupid LME? Even if the A shares keep the company, they get a pile of crap that nobody wants.
Andrew Coye said he invested in QRTEA (now QVCGA) in Q4 of 2023. I’m sure he wasn’t the only one. I actually started heavy buying before then. Many, like Andrew, had solid reasoning behind why they bought, but the results of the following ~2 years have caused many to change their views and sell. I, on the other hand, have not changed my views at all. I have been buying more shares consistently for the past two years. As it happens, I bought more shares in the past few weeks.
So what is different about me and everyone else who bought in the past but sold?
Why I Still Like QVCYou know? I had this whole write-up on cord-cutting being a far less relevant explainer of recent sales declines, that the cord-cutters are predominantly a different demographic than the woman who watches QVC, that 8% cable subscriber losses overstate the impact on QVC, that the cord-cutting component hitting QVC’s financials is closer to a 2% decline blah blah blah blah blah…
Then I stopped writing, because none of that matters. The real reason why I’m still invested in QVC is because QVC is a good business selling for a stupid price, and I’m patient. The fact that people invested in QVC less than two years ago—with good reasoning behind it!—only to let short-term results change their views is all I need to know. I can’t convince you.
You see, QVC has something that most other retailers don’t have: addicted core customers with retention rates far higher than any other in the industry. It has one of the best capital allocators in the business at the helm—Greg Maffei. It has a structurally higher margin profile. It is capital light. It has older customers.
Yes, older customers are an advantage.
Perhaps my favorite component of QVC is that they serve an underserved market of 40–50+ females who have higher incomes, money to blow, and shopaholic personalities. Older people do not change their ways that easily. They are habitual creatures. If you’re not old, one day you will be, and maybe then you’ll realize this key insight that changes the game with why QVC focuses on this demo. I love this demo.
Whenever people suggest that QVC has no strategy to target younger customers, I know they do not understand this business. Younger customers are excitable, always seeking a new adventure, and will probably change their habits for something new, because that’s what being young is all about!
And everybody is trying to target them. Let them.
But QVC, in their own little niche, is the only company in the country that does live shopping for older females. They are the only company that is targeting this demographic on linear TV, streaming, and social shopping. And they do it at scale. Amazon doesn’t compete with this. Amazon is about cheap products, fast. The way you compete with Amazon and Wal-Mart is by finding a niche where they can’t compete. Live selling exclusive products to older ladies is one of them (there are others!).
There are 70+ million people in this aging demographic, and it is the fastest-growing demographic in the country. People talk about QVC customers as if they’re all dying left and right, but their target market is actually growing! And this demo has more money. It has more stickiness. It has more stability. It has more predictability.
Name one other company of QVC’s size that is targeting this demographic on linear TV, streaming, and social shopping.
You can’t, because QVC has a monopoly on it.
Everybody has this weird view that you have to target the young to be successful. But that’s bad business. Success in business is about fishing where the fish are and where the fishermen aren’t, and the Gen Z lake has fewer fish and is loaded with fishermen while the Boomer lake is filled with a ton of fish—massive fish—and nobody is fishing there.
Let everybody else target Gen Z and fight with each other. I’ll take the older females.
All of these things I just described are far more predictive of QVC’s staying power than cord-cutting stats, social and streaming data, and recent quarterly results. Everyone wants a data point that points to a stable future for QVC.
Well, this is it.
Everything I just said is the data point.
You want quantifiable data, but you’re not getting it. Ironically, investing isn’t about numbers. What I just laid out is far more important than everything else going on with QVC in recent years. It’s more important than three years of sales decline, customer count drops, and cord-cutting.
And I don’t know how to convince you of this. But that’s the point, isn’t it? If I could, I wouldn’t be able to make money on this investment. Because of the business qualities of QVC, I’m convinced it will stabilize in the future, and that’s the key in investing. It’s about finding those rare situations where you can predict the good numbers before they happen—rather than waiting for the good numbers to show before you make a decision.
But for fun, to placate the crowd, I suppose I’ll give you all a few numbers. Everything QVC is doing on social and streaming is growing very rapidly. But nobody wants to admit it. I don’t know how many times I’ve seen people attach a terminal decline rate on the linear business, but then they do not attach a growth rate on the social and streaming business—even though there is data out there that shows it has been growing rapidly in recent quarters. Sales on TikTok are growing 30–50% compounded monthly. For people who love numbers, I don’t understand how that isn’t evidence that the new distribution channels are viable and working. And I don’t care that it’s off a small base. The narrative is that they have no chance outside of cable, and this contradicts that entirely. And the base is getting bigger and more material every month.
Total social/streaming revenue was up 20–30% in Q2 over Q1. Management just revealed (indirectly) that they have deliberately been excluding social customer growth in their customer counts that we see in their presentations. According to David Rawlinson, new customer counts were up 7% compared to Q2 last year if you included TikTok Shop customers. Unless you’re calling this fraud, that goes against the narrative that counts are still down.
And beyond that—and I’ll save this for another post—the new social/streaming business is more attractive than the cable business ever was. With social media in particular, rather than relying on channel surfing to get new customers, QVC has the ability to specifically target women who are most likely to be the best customers through targeted marketing. That is better than channel surfing.
Anyway, numbers won’t tell me a thing without the qualitative insights that matter most. I don’t need to do any kind of math to figure out that this business isn’t terminal. I don’t need attrition vs. replacement models. I don’t need cord-cutting stats. I don’t need a quarter of positive growth to confirm my thesis. The thesis stands on its own two feet.
And the reason I can beat the market is because so many people do not like that and do not think like that.
In ConclusionOver a period of decades, a good business may go through tough times—really tough times—but those periods don’t mean the long-term earnings power and strategic advantages have disappeared. The key distinction between good businesses and bad businesses is not “numbers.” What makes good businesses valuable are the qualitative attributes that cannot be measured.
Obviously, there are some numbers that become relevant eventually (like the investor’s rate of return). But even so, if there are nice, crisp numbers that tell you the future is bright, the stock will not be mispriced. You cannot rely on that stuff. But in the academic world, that’s literally how they teach it. All of this financial modeling will not help you beat the market, because good investments that beat the market must be disliked in order to get to an attractive price. If you want to win at this game, you need to get comfortable at investing in things where the numbers look bad, because modern markets are filled with people who basically just take the most recent few years’ performance and extrapolate it to the future.
I call this “tell-me-what-to-do syndrome.” We’re all clamoring for something to make this easy. We want some obvious piece of data, some expert, anything, to give us the green light. It’s not that easy, and it will never be that easy.
But if you want numbers, maybe this number will convince you.
$33 million.
That’s the market cap for QVCGA shares, and QVC’s earning power is far above that. I don’t think anybody disagrees with this. I think what has happened is that QVC has had a long slump that the market thinks will continue forever, and when you pair that with a leveraged balance sheet, the common stock loses out. I think that’s a fair assessment of the general view many have. Correct me if I’m wrong.
But I think the sticking point is this: If the common shareholders don’t lose out—if they maintain their ownership, if the business is able to stabilize—then common shareholders presently own equity in a business that earns 3x to 10x the current share price, if not more.
Stop and think about this.
Most people think of earnings multiples where the share price is 10x earnings or 15x earnings, or 20x earnings. But here we have the reverse.
QVC’s earnings are multiples of the share price.
That’s insane no matter how you spin it. And to the degree that Greg Maffei—who is currently overseeing the most mouthwatering market dislocation he’s ever dealt with in his entire career—can do the very achievable thing of improving the balance sheet for the benefit of himself and other shareholders, then QVCGA is the investment of a lifetime.
© 2025 T.J. Detweiler
548 Market Street PMB 72296, San Francisco, CA 94104
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