Liberty Interactive Has A Handful Of Risks That Just Cost It A Double Downgrade

Analysts at Citi Research turned bearish on Liberty Interactive Corp (NASDAQ:QVCA) as there are "too many long-term headwinds" that plague the company's outlook. The firm's Jason Bazinet downgrades Liberty Interactive's stock rating from Buy all the way to Sell with a price target slashed from $27 to $22.

Bazinet identified five separate risks that could hurt the stock over the coming years.

5 Long-Term Headwinds

First, the pay TV ecosystem continues to shrink and the company's core QVC platform will find it more difficult to gain new customers, Bazinet commented in his downgrade note. The impact from this could be a 30-basis-point headwind to the company's overall top-line growth.

Second, QVC could be forced to offer free shipping and handling across the board as this becomes the "e-commerce norm." Based on the historical pace of the company's S&H revenue reductions from 2007 through 2017, the impact could be another 30-basis-point headwind to the top line as charging customers for shipping has been a "key source of profits."

Third, bad debt expense continues to be a problem for Liberty Interactive and reached levels that haven't been seen since the Great Recession in 2016, the analyst added. This could suggest that management has been using credit (such as QVC's Easy Pay) to "report better top-line trends that the market would otherwise support."

Fourth, following the acquisition of HSN, Liberty Interactive's international markets will make up a smaller portion of the pro forma firm, which could potentially dampen pro forma growth.

Finally, the re-attribution of the exchangeable debt could lower the company's cash taxes but at the same time it implies management will need to address $5.1 billion in liabilities when debentures mature in 2029, 2030 and 2031.

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