SNCR Thoughts

My take on SNCR with no position as of yet:

I was a bit surprised to find that SNCR has been a steadily growing company since 2011 (as far back as I looked). I imagine this has been on the back of their Activation services riding the wave of increasing cell phone usage.

As of the latest quarter, activation services are growing 11% annually. However, cloud services are growing at 31% and are now 50% of their business. As far as I can tell, their cloud services are primarily sold to their existing customer base (carriers such as Verizon).

The stock has taken a hit over fears Verizon is too large of a customer. During the call, the CEO stresses their strong, symbiotic relationship with Verizon.

Their guidance for the next quarter represents 19% revenue growth but only 8% EPS growth.

SNCR will lose 3 pennies in EPS next quarter due to their new partnership with Goldman Sachs. I’d think a few more quarters of this are ahead as they ramp up their product.

I’m considering beginning a position and here are my thoughts as to why.

On their customer concentration, they continue to sign up new carriers as is evidenced by T-Mobile last quarter, their relationship with VZ is strong with a new 2 year contract, they are selling their cloud services to VZ and many others (31% growth).

On their deal with GS, I’m a bit torn here. I like the fact they are continually looking to expand into new verticals, but question the return on investment.

From a market perspective, I don’t see cell phone and cloud usage slowing in the near term, and they seem well positioned as exhibited by their growth in cloud.

I don’t know about their products, but their value proposition appears to be strong. They developed a way to make activation of products easy for OEM/carriers and are attempting to be brand agnostic as far as I can tell. They began their entrée into cloud in 2011 and that is now paying dividends. They seem relatively nimble and smart.

I really don’t know who their competition is, but looked on YahooFinance. I found a few, but none that appeared to cater to cell carriers. Found one that catered to cable companies such as Comcast, but none specific to carriers which seem to be their bread and butter. If anyone understands their competition, I’d love to hear about it.

Finally, now seems to be a good time to invest from a value perspective. Up until 4 to 5 months ago, their PE was generally well above 20. It stands at 17.3 currently.

I’m not sure why this company doesn’t get a bit more following. It’s growth trajectory is a relatively straight line over the past 8 quarters (about 20% annually). One half of their revenue source is growing well and the other half is growing quite fast.

If - and that’s a big if - their partnership with GS in totally secure enterprise mobility pays off, growth may take off even further.

A.J.

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I’m not sure why this company doesn’t get a bit more following. It’s growth trajectory is a relatively straight line over the past 8 quarters (about 20% annually). One half of their revenue source is growing well and the other half is growing quite fast.

Hi AJ, I think it’s because they just don’t seem “sexy”. People think of them in terms of their legacy business and they just seem kind of ordinary and pedestrian, but it’s their new cloud business which is fast growing while the activation business keeps bringing in cash.
Saul

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Saul,

One correction at the end of my earlier post, I mentioned 8 quarters of relatively straight line growth, except it is 30% annually instead of 20%. Coupled with their business prospects and low PE, SNCR appears sexy enough for me!!!

Though beauty is in the eye of the beholder…

Take care,
A.J.

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This has been a puzzling company to me.
They have grown 10times in last 10 years. Except 2008, revenue has consistently grown every year in those 10 years.
The busines model of enabling connections look outdated / should have been compressed over last few years…
Also feels like in today’s time when google, Dropbox, Amazon and Microsoft, all rushing to offer free cloud based storage, who would use carriers like Verizon’s cloud…

Yet the management finds a way to continue to grow…

This is the type of stocks that I am learning to step back from my self destructive abilities and say - none of the above matters. What matters is results and 1yPEG type metrics. This is the type of management that keeps finding ways to do more, bigger, better things under the radar and only way to invest is looking at results.

I keep going in and out of this stock but likely to stay in for a long period of time.

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they have a new presentation showing what they are doing
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9N…

Looks quite compelling…

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I also don’t understand this company. As far as I can gather, they provide the bloatware and useless apps that come on any Verizon phone that you can’t uninstall, and offer services through phone providers that no one wants because you can get a better cloud version of it that works across platforms rather than one that ties you to your phone provider.

They do seem to be growing revenue, but also feel like they are in a similar vein as CRTO in selling a service that to me is annoying. Maybe their enterprise growth will continue, but I just don’t get it, and clearly the street gets it less that i do.

Am I missing something or are these valid concerns?

Am I missing something or are these valid concerns?

I think probably the answer is yes.

HG

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they have a new presentation showing what they are doing. Looks quite compelling…

Thanks Nilvest, that was an amazing presentation! It looks like this new venture with Goldman Sachs could become a big new profit center and direction of growth for them. They really are flying under the radar.
Saul

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I also don’t understand this company. As far as I can gather, they provide the bloatware and useless apps that come on any Verizon phone that you can’t uninstall, and offer services through phone providers that no one wants because you can get a better cloud version of it that works across platforms rather than one that ties you to your phone provider.

They do seem to be growing revenue, but also feel like they are in a similar vein as CRTO in selling a service that to me is annoying. Maybe their enterprise growth will continue, but I just don’t get it, and clearly the street gets it less that i do.

Am I missing something or are these valid concerns?

These are definitely valid questions and similar to some questions I’ve had with SNCR. I don’t have all of the answers, but offer some thoughts anyway.

1/2 of their business is activation services. Their software allows people to seamlessly activate their phone upon purchase. Does it seem like carriers should be able to do this themselves? Yes. Does it seem weird, niche and open to competitive threat? Yes. However, they must provide a value to their clients and their customers as they’ve been at activation services for a long time. Doesn’t mean there won’t be a competitive threat, but I don’t see one currently. This business is growing modestly (11% as of last Q).

The other 1/2 is cloud. I tend to agree with you there are plenty of other options and plenty that may be better. But the sales numbers for SNCR in this area are no slouch growing at 31% this Q. They must be creating value for their customers in cloud. I know little to nothing about the cloud and don’t use it much at all. If anyone has more knowledge here please offer it.

As mentioned before, if their partnership with Goldman Sachs is successful, they are entering yet another vertical in secure enterprise communications/mobility. The name Goldman Sachs is somewhat comforting here. Certainly, GS understands the need for security as much as any organization. In fact, GS is bringing the security IP to the party. I believe a partner such as GS has done their due diligence in selecting their partner here. Makes me feel good about what SNCR is doing in general.

Lastly, I’m pleased at their ability to enter new verticals. I’m sure SNCR saw long ago the activation business can only grow so large. In 2011, they went after cloud. It is their fastest growing segment and half of their business now. This speaks to management’s ability to attack a market segment and develop sought after products that meet needs.

Take care,
A.J.

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The enterprise security solution seems like competing with Good Technology (it’s name of a company - just acquired by Blackbery).

My previous company was very sensitive and required installing Good. So I have used it… A bit annoying (compared to using native email or calendar app on iPhone) but it’s useful. I can see many companies wanting to use such platform, but not necessarily all companies. Apple has been increasing its focus and R&D spend on enterprise which can reduce need for such tools for some companies.

I believe Good was saturated which is why they ended up selling to Blackberry. The latest PR says Good will contribute $160M to Blackberry next year.

So I can imagine Goldman Sach developed in house technology instead of trusting someone else like Good. And they want to take it to open market. I guess in financial market, they may have much better ability to gain share. However, Blackberry / Good will continue to fight new entrants like SNCR / Goldman in this market… While Appls will try to make this model redundant.

So all in all, I am cautiously optimistic on this piece of business but it’s not something to get too excited about given Good’s experience of hitting platue.

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On the other hand, belief it or not, I see the value of the cloud business. Value of this business is not necessarily as high to consumer as it is to carriers… Which is why carriers keep paying to SNCR. Telecom carriers need a way to reduce the pressure on churn… They will try to grab every straw they can get…

Having said all these, this business can hit plattue pretty soon as well just because number of users likely to remain limited

So my conclusion is back to what I said before. None of the businesses this company has are as convincing (which is probably why the market doesn’t treat it as cloud company, probably a fair point)… However, the management has shown real ability to add niche revenue streams in adjacent market and each of these niche likely to sustain for a long time. Financial results show this clearly and that’s what I am learning to trust, thanks to Saul.

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The enterprise security solution seems like competing with Good Technology (it’s name of a company - just acquired by Blackbery).

I remember deploying Good Technologies in the early 2000’s as an alternative push technology for email instead of using Blackberry’s solution. Surprised they are now part of Blackberry as well as that they can contribute 160M in revenue. I remember they got bought by Symbol and later sold off by Motorola when they bought Symbol, thought they would have been gone by now