Synchronoss, a new position.
You never heard of Synchronoss (SNCR), and I never heard of it either until it was a MF recommendation some four weeks ago. It’s totally boring. As I write, it has only 7 posts, total, on its discussion board, and that includes the post setting up the board. So why am I interested? Why have I built up a 5% position? Let me tell you about it:
Synchronoss’ legacy business was pretty boring. It entailed providing a software-based activation platform for mobile phones and other mobile devices (which I believe involves synching with other devices). They get paid $1 to $30 for each activation, but it’s a one-time deal. This cuts problem rates from 30-35% (with manual activations), to 2% with SNCR’s software, and is thus very valuable to the phone companies. Verizon and ATT are their two biggest customers by far, but Synchronoss has signed up close to 100 other mobile carriers around the world. This business makes up 54% of its revenue now but it is only growing at 5% to 20% per year. Pretty boring, isn’t it.
So why did it get recommended as a rule breaker?
Well, starting in 2010 they launched a cloud platform for mobile carriers. This was a genius idea! The carriers love it! When a subscriber has all their stuff on the Verizon cloud, for instance, they are much less likely to jump to another carrier. And in the mobile carrier business, that is a big deal!
For Synchronoss, this is recurring income. They provide the software for carriers to offer cloud services to subscribers. They then earn an annual fee from the carriers ranging from $1 to $5 per user. That’s each year, and it builds up! They are currently signing up 400,000 to 500,000 new cloud subscribers EACH WEEK. Last year the activation segment was up only 5%, but the cloud segment was up 81%. It now makes up 47% of total revenue. You can see where this is going. And Gross Margin is 60% and rising (slowly). It should rise as the recurring revenue requires little or no expenditure, and it’s growing.
And the recommenders think this company has great prospects for the Internet of Things:
Synchronoss, through its cloud services, is ensuring that all of these users will be able to back up, synchronize, and engage their content seamlessly across all of their devices. There’s a lot more to this trend than just phones. A plethora of new items is entering the world of connectivity in the ever-expanding Internet of Things: smart watches, cars, and homes, to name a few. Synchronoss plays a key role in this trend, not only providing the activation software for many of these devices but also launching a cloud platform last year called Integrated Life, specifically targeting connected devices. As households continue to add more devices under one data plan, Integrated Life enables these users to save and seamlessly transfer content across all of them. (It’s already started): Synchronoss already powers the Timex GPS smart watch, it’s in AT&T’s Drive platform for connected cars, and it’s behind Time Warner Cable’s new home management system.
This is now looking a lot less boring, isn’t it? Here are the quarterly revenues:
2012: xx xx xx xx = 275 million
2013: 80 85 90 98 = 352 million
2014: 99 104 126 131 = 459 million
2013 revenues were up 28.0%, and 2014 revenues were up 30.4%. That’s not bad! Here are the quarterly earnings:
2012: xx xx xx xx = $1.10
2013: 28 31 34 41 = $1.34
2014: 39 41 46 53 = $1.79
2013 earnings were up 21% from 2012, and 2014 earnings were up 33.6% from 2013.
At Tuesdays close (when I’m writing this), Synchronoss’ share price was $51.85 so it’s PE was 29.0, and with a rate of growth of earnings of 33.6%, its 1YPEG was about 0.86 (under 1.00 is good, and the lower the better).
Hope you’ve found this interesting and not boring at all.
For FAQ’s and Knowledgebase
please go to Post #7062