A Seeking Alpha Take on UBNT

I have yet to read this yet, but from reading the headline and skimming, the author seems to think there is something to the SEC Inquiry, despite the massive buybacks that UBNT has been engaging in.

https://seekingalpha.com/article/4181782-forget-buybacks-run…

If I get a chance to read through this, I’ll try to come back with my thoughts about how valid this take seems to be.

-volfan84
Long UBNT, including a 2020 $70 call option position

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I did a first-pass read. My initial take is that their arguments consist of:

  1. SEC started its investigation in Dec 2016.
  2. Company didn’t disclose it until Feb 2018.
  3. Author believes the company is spending mfar ore than it’s saying (which is $319K so far).
  4. CEO Pera has a short-term personal interest to keep the stock price high for now, but not a long term interest. This is tied to Pera needing to sell some UBNT to buy out his Memphis Grizzlies partners, but not selling so many shares that he’s no longer majority UBNT owner. Once the Grizzlies deal is done, we think Mr. Pera will care a lot less about the near-term share price of Ubiquiti.
  5. Company doesn’t have CFO (hasn’t had one in years) and that remains a big red flag.

The article mentions the Citron short article as an indication a few times without actually supporting Citron’s arguments. It suggests Herbalife and Enron as parallels in side areas (like cost of the SEC investigation response), thus leveraging the “fraud” connotation without getting specific about potental parallels.

My take-away is that there’s nothing new here, but it’s worthwhile to consider all the fraud arguments made in one place. The SEC investigation started before the Citron bear attack. UBNT has been buying back stock, which has helped support the stock price. Perhaps the hardest thing to consider is that Pera runs his company differently. We all know that. That extends from how he advertises to how product support works to how and where development is done to how he handles C-suite roles. His development costs for new products are far under what one would expect, so even a failure like with the wearable camera was not a big hit to the bottom line.

What bothers me most about the article is the constant mention of fraud without any backing data. They essentially say things like No CFO == Fraud, or that spending less than larger companies on responding to the SEC investigation == Fraud. They say the Citron report was “so damning that it could have easily triggered an investigation on its own,” but don’t actually cite one thing from that report.

We are not saying Ubiquiti Networks is a fraudulent company. We are saying we’ve been doing this kind of research long enough to have our spider senses warning that it just might be.

Yet, they let their “spider sense” turn into a “table-pounding” conviction to get out ASAP.

If you’re risk adverse, there are probably better stocks to own. If you’ve been following UBNT for a while and know how the company operates and have confidence in Pera, you don’t need my advice.

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