Seeking Alpha had two interesting articles today
1 Ubiquiti: More Transparency Is Still Needed
The authors sent some researchers to a Ubiquiti distributor in the Ukraine and did not like what they found.
https://seekingalpha.com/article/4111838-ubiquiti-transparen…
The authors think Citron has made an UNFAIR case and used improper valuations.
https://seekingalpha.com/article/4111761-shopify-response-ci…
On the UBNT article, there are already some good comments that shoot down the point of the article:
- You went to one reseller and this “proved” things to you? As I wrote in another thread, I had my proof when I asked my team (young people and generally nerds) what network infrastructure they set up for themselves at home. Yes, you guessed right.
- his is some very average research. I’ve been in the WISP business for 11 years and for those who don’t know the company, I don’t believe a couple of days of casual research is enough to for you to draw any conviction on this company either long or short. Suffice to say, Ubiquiti has incrementally gotten better at everything from quarter to quarter. Every quarter they fill one of these “holes” or bear issues that is pointed out and they have grown stronger and moved higher. Every year that I’ve known the company has been less and less scary. At the end of the day, we are getting quality products for a very reasonable price there is no other player in the space who can provide that for us! Thus, UBNT’s core revenue generator isn’t going anywhere for a long time. Meanwhile UBNT will keep buying back stock quarter after quarter while something else comes along and delivers huge upside.
I would not bet too hard against this company with too much conviction on such a weak sample set of data, Pera is taking the other side of that bet with far more discipline, determination and resolve for long term EPS growth and the growth of the markets for his consumers which include me.
-yeah, the Expert Solutions in Kiev is favoring products of Ruckus Wireless, and it’s not seller of consumer products like FrontRow or AmpliFi, so it was very stupid from the point of analysts to ask about. Another thing- if you want to reasearch BMW products in US- would you really go to DC (because it’s the capital) and search for a dealership closest to the White House? Really? If UBNT needs ‘more transparency’, then it definitely needs better analysts before that.
-Can you find me a company more transparent that Ubiquiti? I’ve never seen one. You can follow its software and firmware R&D on the community, sometimes from very early stages (e.g. UNMS, uFiber). You can beta-test its hardware. You can read very honest reviews of its products by its customers (who tend to be industry experts) long before they’re available to the general public and have financial impacts on the company.
“As we found out later on, the majority of resellers, including those, who you could find on Ubiquiti’s website, also have licenses from other wireless manufacturers to sell their products at the same shop. That means that Ubiquiti doesn’t have any real competitive advantage against its rivals in terms of sales operations, as all of their products are selling together with the products of their competitors under the same roof.”
Of course they do, and of course they don’t. Ubiquiti has no sales operations to speak of.
“When we asked the manager of the shop to give us the advice of whether we should purchase Ubiquiti’s Wi-Fi access points for personal use, he said that there are far better products of the same quality that have better prices and bigger customer base.”
This is an odd question, given that Ubiquiti makes only one product for personal use: the AmpliFi. It’s a good product, but aimed at high-end homes in richer countries. It’s way too expensive for the Ukraine, which tends to favor MikroTik. It’s also not doing well versus its competitors (Google wifi, Orbi), though Robert says it’s profitable. I don’t know anyone who’s long Ubiquiti for their consumer gear.
If you want to understand Ubiquiti, try talking to their customers: WISPs and network installers. My suggestion would be to go to WISPAPALOOZA next week in Las Vegas.
Can you link to Expert Solutions’ website?
The Latvia office does Ubiquiti Labs stuff; they’re the ones who made the AmpliFi.
Good luck with your short. Expect Ubiquiti to announce a slew of new products next week (I’m expecting LTU and XG WAPs).
Focusing on one reseller to make a bear case does not make sense. UBNT has had issue with weaker distributors and has done a good job of upgrading to larger, more established distributors (which caused an increase in their DSO), so UBNT has already started fixing this. Pera is an engineer who is great at design, so running a company has been a learning experience for him and there have been a lot of errors (wire fraud, material control weaknesses, weak distributors, undersupply of product, etc). However, he has learned from the errors and is continually making improvements. Pointing out a weak distributor who may be in the process of being replaced is a weak argument.
Another seeking alpha article looked at a different European distributor and found it to be an effective partner for UBNT.
https://seekingalpha.com/article/4111349-ubiquiti-networks-s…
Summary
We do not see fraud. The European distribution partner is at an excellent location for logistical reach across entire Europe. We like distribution being run from a “tent.”
Flytec, a multibrand PC and network distributor, also is a logical choice for a partner.
We see inventory write offs, future debt collection and potential debt expenses as potential risks. They should be followed closely to ensure Ubiquiti’s strategy and business model remain intact.
Using several valuation methods we assess the intrinsic value of Ubiquiti’s business under different scenarios. We believe the stock is between bargain and fair price at current levels.
Any investor should understand well what they are buying into with Ubiquiti. They will live with price volatility and the occasional hicup due to an ultra-thin layer of management baked into the business model.
Thanks wouter28, appreciate your sharp analysis.