Why UBNT is not a millionaire-maker stock according to the author of this article:
“…The first and most obvious is that it is difficult to find a moat – or sustainable competitive advantage – that can hold the competition at bay. Ubiquiti started out by entering and dominating a niche, providing Internet connectivity to under-served areas both at home and abroad. After that, it moved into enterprise solutions. And while business is currently booming in that area, the sale of hardware like switches, gateways, and access points represents a business that could eventually become commoditized.
As fellow Fool Tim Brugger recently pointedout, the real moat in network connectivity comes from the leverage provided by an Infrastructure-as-a-Service (IaaS) model that some bigger rivals like Cisco (NASDAQ:CSCO)are starting to adopt. Additionally, if the company can’t generate growing sales without a more robust sales force, one of the factors helping Ubiquiti keep prices down will evaporate.”
I am gonna go out on a limb here and answer IMHO: No, in this bull market it has not been a millionaire maker stock and it will not be a millionaire maker stock.
Obviously sentiment on this board is contrary to my opinion, but I cannot see a stock that for years has promised to disrupt the entire industry, that in a bull market, a market such that Arista can disrupt Cisco and Juniper and everyone else to the point that their sales are declining, not just slowing down, while Arista’s are accelerating, that UBNT is finally going to take over its markets and produce Nvidia or Amazon or Arista type returns.
The network is transforming and disruptions are happening all over. Either UBNT is powering this transformation or it is not.
I’m going to take the framework at the beginning of the article of a 100 bagger out of the picture as it seems pretty silly to me. That would take UBNT to a $500B company. I don’t see that happening.
Realistically, UBNT can grow multiples from here. They just began moving to higher end, higher ASP gear with greater performance at incredibly low prices compared to the competition with no licensing fees. Their world is WiFi and there is an incredible need for it almost everywhere. Literally every business needs it and there are many places in the world still without it or it is very unreliable.
The Enterprise portion of the business is going great guns showing their move into higher performance is paying off. The company won’t stand still either. They are known for their efficiency in R&D. I’m sure there will be some products where they will swing and miss, but that will be done at a very low cost. Products that do take hold provide great returns for the company.
So, will UBNT become disrupted? At some point that is likely, but it seems many years away. FB has been looking at satellite connectivity. Google has Project Loon. Maybe those will come along faster than anyone imagines. Not sure. 5G may prove to be disruptive. But that rollout is several years away and will take several years to rollout. By this time, UBNT has the opportunity to grow quite significantly. The world won’t wait for connectivity.
So, no. I don’t think UBNT will become a half a billion dollar company, but I don’t need them to in order to make money.
So, will UBNT become disrupted? At some point that is likely, but it seems many years away. FB has been looking at satellite connectivity. Google has Project Loon. Maybe those will come along faster than anyone imagines. Not sure. 5G may prove to be disruptive. But that rollout is several years away and will take several years to rollout. By this time, UBNT has the opportunity to grow quite significantly. The world won’t wait for connectivity.
I’m wondering if anyone has any thoughts as to a complete disruption of UBNT. I guess that would be considered a “radical innovation” or as most call it a “discontinuous innovation.” Facebook’s satellites and Google’s balloons would fall into that category if…well, if a lot of things. 5G, if it will be what it is touted to be, would be a disruptor. I hear of incredible download speeds in your home wirelessly (like it is coming out of nowhere). If that were true, it could be the radical innovation that would disrupt UBNT.
I’d be interested to know what folks much smarter than me think about this.
However, save a radical innovation, UBNT remains unique in its business model which allows the company to be incredibly profitable compared to competitors in the same space.
I’m wondering if anyone has any thoughts as to a complete disruption of UBNT. I guess that would be considered a “radical innovation” or as most call it a “discontinuous innovation.” Facebook’s satellites and Google’s balloons would fall into that category if…well, if a lot of things.
Neither Facebooks’s satellites or Google’s balloons are a true threat. For wireless to be ubiquitous both of them are planned in the lower frequency bands, which puts a cap on speeds/data transfer they can offer. We are talking of 3G speeds - at best 4G speeds. If you need higher speeds or data transfer you need to go to higher frequency bands and higher frequency bands do not travel over great distances or through obstacles without loosing signal. WISPs which are UBNT customers can offer true wireless broadband.
A bigger risk would be Cisco or other big competitor deciding to mimic UBNT’s business philosophy. But that is easier said than implemented.
5G, if it will be what it is touted to be, would be a disruptor. I hear of incredible download speeds in your home wirelessly (like it is coming out of nowhere). If that were true, it could be the radical innovation that would disrupt UBNT.
5G is in its limit what UBNT already is with wireless broadband. 5G in itself is just a set of standards for the higher frequency bands. When you go to higher frequency band you can transfer higher data, but need far greater concentration of towers and cellular equipment. Essentially you deal with same issues which UBNT equipment todays addresses for their WISP community.
I had spent a few hours researching this very question - what would be the impact of 5G on UBNT wisp business ? Unfortunately I lost the page where I had saved all the links. But my conclusion was
5G uses the unlicensed frequency which WISPs use.
5G rollout will require a lot of the same equipment which UBNT manufactures. If anything it may spur more growth for UBNT equipment.
A bigger risk would be Cisco or other big competitor deciding to mimic UBNT’s business philosophy. But that is easier said than implemented.
I would tend to agree with that assessment. Cisco could go after the market by dropping its prices to undercut UBNT. I see this as highly unlikely. For one, they would be cannibalizing their higher end market. Secondly, how long would they keep their prices low and lose money just to compete with UBNT. Would Cisco be willing to forgo service contracts and software licensing? Would they fire all of their sales people?
I also think it would be difficult for a new company to enter the space by mimicking Ubiquiti’s model. They would have to start from scratch and build a community of users who support the product. This took time for Ubiquiti and would take time for others along with seed money which may be tough to find in a very competitive hardware business.
In short, a business model disruption has always seemed less likely than a radical technical innovation in my mind. However, that may be because I’m very ignorant when it comes to the tech.
So, Swapsan, thanks again for your reply. It does make me feel more comfortable that someone else has looked a bit deeper into this who knows more about the tech.
I would tend to agree with that assessment. Cisco could go after the market by dropping its prices to undercut UBNT. I see this as highly unlikely. For one, they would be cannibalizing their higher end market. Secondly, how long would they keep their prices low and lose money just to compete with UBNT. Would Cisco be willing to forgo service contracts and software licensing? Would they fire all of their sales people?
Completely agree. They are not voluntarily going to forego revenue or change their corporate structure. They will do that only when writing is clear on the the wall and revenue is anyways declining - and if and when that happens UBNT already would be a successful investment for their long term shareholders !!
I also think it would be difficult for a new company to enter the space by mimicking Ubiquiti’s model. They would have to start from scratch and build a community of users who support the product. This took time for Ubiquiti and would take time for others along with seed money which may be tough to find in a very competitive hardware business.
Very true. Also under appreciated is the fact that once a WISP commits to a particular vendor, it is not easy or has no incentive to switch unless there is a really compelling reason. Incremental improvements from competitors is not going to cut it. The repeat business will most likely come back to UBNT. So moat is higher in my opinion than market is giving credit for.
Very true. Also under appreciated is the fact that once a WISP commits to a particular vendor, it is not easy or has no incentive to switch unless there is a really compelling reason. Incremental improvements from competitors is not going to cut it. The repeat business will most likely come back to UBNT. So moat is higher in my opinion than market is giving credit for.
The Service Provider portion of the business has been a nice cash cow for the company, but growth has been a bit stodgy. However, while SP declined 1% this quarter it was against a difficult comp of their highest quarter ever in SP. So generally speaking, the trend looks to be in the right direction and that business seems to slowly be picking up.
Some questions on the WISP market and SP products. Does anyone know much about the WISP market in general? What is the anticipated growth rate and how is it sliced geographically? What about UBNTs current and new products for WISP? Are there reasons to be doubtful/enthusiastic?
I’m going to do a bit of research myself on it, but thought I’d ask for input too.