When Bert wrote about UBNT someone posted on this board:
Ok, surely Bert has found this board.
No, I don’t think he’s found this board. At least he hasn’t posted here yet. It’s just that he does four or five deep dives a week on tech stocks, and eventually he finds his way to most of the familiar names. His articles seem fairly balanced and are neither pumping unreasonably nor short type articles. (I’m sure he’s well paid by Seeking Alpha for this service, because these are really excellent articles). Here’s a link to all his articles. There are 201 of them in the last year. And you can filter by ticker on the left side of the page.
It’s website isn’t very sophisticated, and I find it a bit confusing at times, but the information is useful if you are interested in following an actual cash portfolio.
I would add that the company has perhaps gone overboard in terms of being lean.
The Bezos quote “your margin is my opportunity” comes readily to mind. UBNT has proved that these products can be made cheaply and well, and they are enjoying 30% to 35% net margins (net!). That HAS to invite competition, especially as this is a product, not a service, and as was said in a recent thread, products eventually get commoditized. Denny pointed out that it may take a while for products to get commoditized, but to me that just means for UBNT it’s simply a matter of time.
UBNT has proved that these products can be made cheaply and well, and they are enjoying 30% to 35% net margins (net!). That HAS to invite competition, especially as this is a product, not a service, and as was said in a recent thread, products eventually get commoditized. Denny pointed out that it may take a while for products to get commoditized, but to me that just means for UBNT it’s simply a matter of time.
Sorry, Bear, you are missing the key ingredient.
UBNT can sell at a quarter or a fifth the price of Cisco because they have no sales and marketing expenses.
UBNT has no sales and marketing expenses because they have a loyal community that does the selling and marketing (and most of the support) for them.
It takes years and years to build up a community like that that loves your products enough that they will do all that stuff for you for free.
A competitor who just comes out with a cheap product and tries to sell it using a traditional sales force will go broke because of the sales expense.
A competitor who just comes out with a cheap product and tries to sell it using no sales force will go broke, because no not enough sales.
Just saying…
Saul
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UBNT can sell at a quarter or a fifth the price of Cisco because they have no sales and marketing expenses. UBNT has no sales and marketing expenses because they have a loyal community that does the selling and marketing (and most of the support) for them.
Dell was a great example of a similar type of operation. They kept their costs low by not having to stuff sales channels by building the equipment as it was ordered by the customer. They took on and beat giants like IBM and Compaq. IBM sold off their PC division and Compaq was merged into HP.
Dell eventually hit a wall but it was a great investment while it lasted. These investments don’t die overnight and it’s easy enough to exit them in time by following your positions.
A competitor who just comes out with a cheap product and tries to sell it using a traditional sales force will go broke because of the sales expense.
I completely disagree. A competitor who isn’t trying to make a profit can spend, say, 25% of revenue on sales efforts, and still undercut UBNT on price.
And why would they want to do business for no profit? Cisco would have to cut prices by 80% to compete on price, and actually undercut Ubiquiti. And show big losses on those products. Would they do that? Would their stockholders let them? Why? To fight a little company with 5% market share? You can’t fight the low-cost producer by cutting your own prices unless you are willing to take big losses.
While I am not, and never will be a shareholder of a hardware product company (though I have been) again as it really is a matter of time before commoditization sets it or a better widget is launched, Saul’s pointbis very valid. And additionally, most of cisco’s business is via resellers. Which means that resellers have to stack margin on top of Cisco’ systems margin in order to make a living.
I believe, though am not 100% sure, that UBNT business is actually direct to their clients without a middle man. So from a pricing perspective their selling model really is eating Cisco’ systems lunch for the market sector they are going after
I’m not too sure. I’ve already seen competitive products advertised on Facebook. Another very low budget sales vehicle. I’ve not explored pricing, specs and so forth, but I’m not too confident that UBNT has such a strong moat due to their marketing strategy.
But I am not sure who their Distributor is. As far as not having a Sales team, I am not sure how to gauge that. They have distributors and paertners, so they must have some kind of CAM or DCAM that manages those accounts, helps work orders through the process, some kind of Channel programs, etc.
At least I would guess, who signs up the Distributor? Who does the Distributor work with to resolve issues?
These people are usually channel account teams which are a type of sales person but not doing direct hard sale accounts.
When I get time, I will check around as I know a lot of Channel Account managers in IT as that work with the Singapore Distributors to see what their model really is
Is this the same Bert that scammed investors and went to prison?
Sure is! Here’s his self-description on Seeking Alpha, which is a straight-forward admission of that, which I’m sure you knew. Aren’t you the wonderfully self-righteous one though! Bert is at least making an honest living now, and providing an ENORMOUS service to investors like me (and you if you’re interested), and all for free.
Saul
Bert Hochfeld is a convicted felon and former hedge fund manager. He was convicted of mis-appropriating funds from his hedge fund in 2012. .Bert started his business career at IBM working in the areas of product planning and pricing after completing military service Bert worked for IBM in the late 1960’s and early 1970’s before he took as a post as head of sales and marketing for Memorex Telex and worked there for most of the 1970’s until he joined Raytheon Data Systems in a similar capacity in the 1980’s. Bert briefly became a real estate developer in the Boston area before joining BMC Software as a product planning director in the late 1980’s and early 1990’s. Subsequent to that he entered the brokerage business where he became an enterprise software analyst, first at Louis Nicoud and then at Josephthal.&; Co. After Josephthal closed Bert started his own independent research consultancy specializing in enterprise software, storage and IT outsourcing. Bert also ran a small hedge fund. After his arrest and conviction, Bert closed both of those ventures and have been on a sabbatical the past few years. Bert currently manage his own money and those of a few close friends. All of these investments are in tech and we also take positions in small start-up ventures. …
Hochfeld’s fraud centered on a technology-focused hedge fund, known as the Heppelwhite Fund, that Hochfeld Capital managed. Unusually, many of the victims, among them Hochfeld’s personal friends, had called for leniency, in part because Hochfeld has promised to work to pay them back.
Sorry foodles, but to me it sounded like a snarky, disingenuous question. Clearly, when he asked “Is this the same Bert that scammed investors and went to prison?” he already knew the answer! He wasn’t asking a “valid question.” If he had asked something like: “Do you feel comfortable with him considering that…?” I would have tried to give a thoughtful answer.
Best,
Saul
PS - definitions
snarky = snide, sarcastic
disingenuous = pretending to be unaware, assuming a pose of naivete, insincere
Sorry foodles, but to me it sounded like a snarky, disingenuous question.
If that’s how Sox meant it, then your response was fine. I just didn’t read his comment that way (again, the problem with typed communication), I suppose only he knows for sure.