Spark NZ (ASX:SPK) has confirmed rumours that surfaced in the AFR over the weekend, reporting it will sell a 75% stake in its existing data centre network for $530M to Australian firm Pacific Equity Partners.
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That $530M windfall is, by all means, a pretty sweet deal. Spark NZ, that country’s largest telecommunications provider (read: Kiwi Telstra), has a market cap of $4.45B – perhaps explaining why share price action hasn’t been too crazy.
Or it could be evidence of a market divided on what it means Spark NZ has just sold off three-quarters of its data centre portfolio, which brings up, perhaps, a question larger than Spark: Aren’t data centres supposed to make money?
Spark has been honest about its financial difficulties in recent years and, most pertinently, has been looking for someone to buy its data centres since the start of the year. Or at least, it’s been having conversations.
Perhaps the fact it took six months to find a suitor is a good thing.
After all, acquisitions and divestments shouldn’t be rushed; they ought to be thorough and closely examined. Then again, it’s six months later.
Spark is the victim, ultimately, of the household computer’s funnier and better-looking sister, the smartphone. The computer-in-a-pocket world we live in has led to the rise of digital software services giants that, ultimately, have stolen government and corporate clients away from old-worldish telco companies like Spark.
But that brings us back to the point I was making three paragraphs ago. Weren’t data centres, on the back of AI, supposed to be a world-class asset category that was going to create billions for anybody who owned one?
Well, that could still be the case, but if it eventuates in the future, it’s one that Spark NZ clearly doesn’t have the funds to sit around waiting for.
Morgan Stanley recently reminded clients (in persuading them to cough up money for data centres) that, to date, Generative AI chatbots like ChatGPT and Gemini, owned by the likes of OpenAI and Microsoft, don’t make any money.
Another lesser-known US GenAI company, Glean, apparently spent half a billion U.S. dollars to generate around US$8M a month.
The reality is the AI thematic is currently about as profitable as Liontown right now, which is actually losing money and so being backed by the taxpayer. I deliberately selected a lithium company for comparison to make a point you can probably figure out.
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And with the NZ economy not doing too flash right now, data centre costs being notoriously challenging, and rising NZ electricity prices, Spark’s going to have to hope its 25% stake means something, one day.
SPK last traded at $2.36/sh.
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