Is UBNT a solid opportunity?

Hi Saul,

I posted the following on the RB board, but its probably a good idea to post it here. You probably have a lot of knowledge about this company, so I would appreciate your thoughts/comments on the future prospects for this company.

Thanks,

Anirban
— x post from the RB board ----

I was intrigued by NotDutchNotMuch (Bashaar’s) bearish post on UBNT:
http://discussion.fool.com/1069/so-i-am-on-the-fence-but-falling…

Bashaar makes a compelling case around the point that much of the wireless networking growth projected in various reports are probably looking at 3G/4G type technologies. Much (all?) of Ubiquiti’s service provider solutions are targeted at point-to-point wireless technology. I 'm deliberately focusing on the service provider solutions as these account for about 75% of UNBT’s revenues. The point-to-point technologies are targeting wireless Internet provisioning for remote/rural areas, where the cost of deploying cables (fibre, coaxial, HFC whatever) and cellular technology for high-speed broadband (LTE) is prohibitively high. I agree this is a niche area. I would think such point to point wireless tech wouldn’t be practical in high-density areas with low broadband penetration (e.g., in India?). Now, in my digging around, I did find one example of massive deployment in Russia. Somewhere, I saw the state of Alaska being mentioned as an example territory ripe for invasion by WISP. I suppose there are large countries in South America that may also be good candidates for use of such technology. Some analysts predict that the WISP business will grow at CAGR of around 20%. If true, Ubiquiti will be able to eat of lot of this pie!

Some additional note from my due diligence

I have found some articles that I thought were useful in that they helped me understand Ubiquiti’s product line.

Enforta in Russia deploys airMAX
“Ubiquiti Networks, Inc., a next-generation communications technology company, today announced that Enforta, the largest fixed wireless broadband operator in Russia, is leveraging Ubiquiti’s airMAX product platform to expand its networking infrastructure. Two-thirds of the largest 200 companies in Russia use Enforta in some capacity, and the company’s service footprint includes over 200 cities with an aggregate population of 70 million people.
More than 7,000 airMAX devices are now deployed on Enforta’s fixed wireless network. The company is averaging 1,500 new installations per month with 20% year-over-year revenue growth and Enforta’s plans include a near-term expansion of airMAX to another 150 secondary cities. Using airMAX, Enforta is able to support networks in Russia’s harsh weather conditions in areas like Siberia, as well as rely on the quality and affordability of Ubiquiti products for cost-effective market expansion to underdeveloped territories throughout the country.”

Read more at:
http://www.marketwatch.com/story/enforta-deploys-ubiquitis-a…

AnandTech on Ubiquiti’s fixed wireless broadband solutions

“One of the most interesting product lines from Ubiquiti is their fixed wireless broadband lineup. The airMAX, airFiber and EdgeMAX products helps Wireless Internet Service Providers (WISPs) to provide broadband access to remote and sparsely populated areas (think of outposts in Alaska with populations in the hundreds or low thousands). Laying wired cables to such areas might not make economic sense and this is where Ubiquiti steps in. Fixed wireless broadband providers have rapid ROI since they do not require trenching and can also be deployed in areas with limited infrastructure.”

The WISP business is still a niche market, but analysts predict that it is growing at a 21.8% CAGR through 2017. This represents a $5.9B revenue opportunity for service providers next year.

Read more at:
http://www.anandtech.com/show/7445/ubiquiti-networks-introdu…

Raving fans

I poked around the web and found some interesting discussion from Spiceworks network. Appears their products have raving fans! Lots of strong positive comments about good technology (reliability, performance etc) and also about their cost being significantly less than the next door competitors.

Note: I don’t know how regarded Spiceworks is among the IT gurus.

http://community.spiceworks.com/topic/388720-jumping-into-ub…
http://community.spiceworks.com/product/41183-ubiquiti-netwo…

Anyways, I 'm still on the fence. Still undecided on whether this one has the potential to be a 2 or 3 bagger from here on, given its a bit of a nice market play.

Anirban

3 Likes

Hey Anirban

Glad I hit a nerve :wink:

Just to clarify, I am not necessarily bearish, just that I think the market cap expansion potential is limited given that it is already a $4b company and they really serve a niche market in the service provider sector, whose investment growth rate of 32% for wireless broadband infrastructure in unlicensed spectrum I believe is way overstated as it includes the projected investments in 3G, 4G, and equipment manufacturers are already working on 5G technologies.

UBNT will do well as a company, I just think it is too late to buy into them now if your objectives is to identify investment opportunities that can lead to a triple. Just do not see it happen.

All the best
bashaar

4 Likes

By the way Anirban, those comments by IT people on Spiceworks that you linked to would be enough to make me buy UBNT if I didn’t own it. Wow! IT people LOVE their products!

Thanks for the link

Saul

5 Likes

Saul,

I agree they have raving fans. This allows them to invest less on sales and provide quality products at lower cost points. Given the founder/CEO ownership, strong eps growth, and growing fan base, I agree this does look like a very solid company. Often, good strong leadership creates great culture of innovation, so it’s hard to really look 3-years out and say what the future would look like.

So after much pondering I started a position. Actually, one long stock position and a written put position taking advantage of the market’s sell off.

Thanks again Saul.

Anirban.

Anirban, Nice to have you aboard.

Saul

Hello Bashar,
Would you mind posting your bearish post from RB on this Board? I would like to read it if you dont mind.

Thanks,
Andy

One of the things about great companies is that they successfully apply formula for their first success in adjacent product or markets.

While UBNT is highly successful in WISP market (which is relatively niche in large wireless infrastructure market), the success formula UBNT has can be applied in many adjacent products and markets.

And there are many many signs that Pera understands this and working on it.

I see UBNT capable of laying many golden eggs (like AirMax) over next decade/s. That to me is big reason to buy and hold on to UBNT dearly.

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Thanks nilvest,
What do you consider his successful formula? He is fourth with cisco being #1. What in his business model will make Ubnt #1?

Andy