Synchronoss (SNCR)

Investment Analysis Clubs Saul’s Investing Discussions
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In Dec 2016 I was invested in Synchronoss when they did something really stupid. I exited the next day. They were at about $38. They had been as high as $48 but I didn’t care. Here’s what I wrote at the time.

My take:
A day ago this was a company that had turned the corner, and was on a sharp ascending path. Now they are acquiring a company half as big as they are (a huge acquisition) that is losing money and growing revenue slowly, and taking the CEO of this company as their new CEO. They’ve become an unknown quantity!

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After a long wait, they finally turned the corner. Their cash cow activation business had slowed down but was still raking in the dough. Their cloud business had become over 50%. Their new enterprise business with Goldman and Verizon was finally bearing fruit. Earnings had taken off again after several quarters of flatlining. All they had to do was sit back and rake it in.

So what did they do?

1. They sold their cash cow, which was guided to be $74 million for just the next quarter, and 37% of their total revenue for the quarter. That’s wrong! You keep your cash cow legacy business until it becomes a small enough part of your total that you don’t miss it.

2. They are taking on new debt of $900 million which is roughly half their capitalization.

3. They are acquiring a company that they clearly didn’t need (based on the “sit back and rake in what you have earned” scenario). This is a huge acquisition. This acquired company is almost half their size, is losing money, and has grown revenue VERY slowly. Why is SNCR doing this? You mean they couldn’t find a bolt-on acquisition that would make them happy?

4. The CEO that has made them so successful is choosing this crucial moment, with everything in flux, to remove himself from the day to day running of the company.

5. And who is replacing him? The CEO of the slow growing, money-losing huge acquisition. What a great choice.

This is no longer the company I was invested in. It’s barely recognizable. It’s an unknown quantity, with a huge debt load, less revenue, and a CEO who is also an unknown quantity. It may do fine, but it will do it without me.

I now accidently discovered an article about them mentioning that they have been unable to give quarterly results for over a year because they are redoing past results. No results for OVER A YEAR! They are now selling at $10 something compared to my exit price about $38.

And I just discovered that they are still carried as a “Buy” recommendation as far as I can tell by one of my favorite MF services. Oh well! What can I say? I know the Fool invests for 5 years or more, but if I had stayed in SNCR in December 2016, I wouldn’t have had that money that grew at 84% in 2017. Instead it would have dropped 74% with the Synchronoss price. My investment would have been worth about 1/8th of what it’s worth now. Down 87.5%! Sometimes, it seems to me you have to make exceptions and get out.

Saul

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And I just discovered that they are still carried as a “Buy” recommendation as far as I can tell by one of my favorite MF services. Oh well! What can I say? I know the Fool invests for 5 years or more, but if I had stayed in SNCR in December 2016, I wouldn’t have had that money that grew at 84% in 2017. Instead it would have dropped 74% with the Synchronoss price. My investment would have been worth about 1/8th of what it’s worth now. Down 87.5%! Sometimes, it seems to me you have to make exceptions and get out.

I also owned SNCR and got out when the thesis changed. I can’t recall whether your post helped me decide. Anyway, thank you if it did! I think I salvaged a small gain. I subscribe to a couple MF newsletters and have had a similar experience with several stocks which are still active recommendations. I’m astonished since they are dead money at best. MF is typically very late to sell, usually well after the initial thesis has completely broken down and the stock price has deteriorated significantly. I’ve decided that the services are great at identifying potential investments but it’s up to you after that. There’s little emphasis on following the stocks closely and sell decisions. It’s a flaw in the investment approach. They end up with way too many active stock picks without a focus on the highest quality picks. And as in the case of SNCR, losses are amplified on a losing investment.

dave

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I didn’t sell SNCR . . .

That’s because I never bought in the first place, I had little confidence in this company before the multiple blunders noted by Saul.

Why do I write this? I just wanted to emphasize the same thing Saul has recommended numerous times. Do your own research, make your own investment decisions. Do not follow Saul’s actions blindly. I won’t pretend that I have the investing acumen that Saul has. And I will freely admit that my investment decisions are influenced by Saul due to my deep respect for his judgment, but I don’t try to mimic him.

There is a wealth of information on this board and it is my primary source for finding investment opportunities. I have tried to prospect for investments; when I find an interesting company that I think might turn into a profitable investment I put it on a watch list maintained with my broker (Fidelity). To be honest, my track record is rather dismal. All but one of those companies have performed less well than investments made in companies I first learned about on this board. The subject company is Tucows (TCX), up over 100% in about 18 months. Despite the stock price growth, I’ve still not invested in the company as they seem to rather consistently miss their earnings estimates. My confidence in their execution remains low. I had a brief flirtation with Brinks (BCO) as they had brought in new management which seemed to promise significant business improvements, but after a few lackluster quarters, I exited the position in order to redeploy the funds in more promising companies.

So, my point is this. Irrespective of where you find investment opportunities, make every investment decision your own. There’s nothing the matter with seriously considering the rationale for decisions, advice and recommendations made by people you respect. Even Saul pays attention to the analysis provided by Bert Hochfeld, TMF, contributors to this board and I’m sure other sources of investment information. But he owns every decision (including the important decision to do nothing).

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So, my point is this. Irrespective of where you find investment opportunities, make every investment decision your own. There’s nothing the matter with seriously considering the rationale for decisions, advice and recommendations made by people you respect. Even Saul pays attention to the analysis provided by Bert Hochfeld, TMF, contributors to this board and I’m sure other sources of investment information. But he owns every decision (including the important decision to do nothing)

Just repost this every day.

Super important.

Cheers
Qazulight

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And I just discovered that they are still carried as a “Buy” recommendation as far as I can tell by one of my favorite MF services.

To be clear, that MF service un-recommended SNCR in Jan 2017 (a month behind Saul) and only undid that with a recommendation last November.

True, an un-recommendation is not a sell, which in hindsight was the better call, but it isn’t accurate to say the service still carried [it] as a “Buy” recommendation".

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True, an un-recommendation is not a sell, which in hindsight was the better call, but it isn’t accurate to say the service still carried [it] as a “Buy” recommendation".

As the first quoted paragraph in your post states, the poster said, “as far as I can tell.”

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To be clear, that MF service un-recommended SNCR in Jan 2017 (a month behind Saul) and only undid that with a recommendation last November. True, an un-recommendation is not a sell, which in hindsight was the better call, but it isn’t accurate to say the service still carried [it] as a “Buy” recommendation".

Hi smorgasbord, Carrying it as a “Hold” instead of a buy, means telling your subscribers to not add but keep holding… to keep holding all the way down from $38 to $10, instead of selling and redeploying the funds. When anyone from the MF staff could have looked at what just happened, seen what I saw, and said “We are selling out of this.” I didn’t have to do any genius analysis. It was clear as day (growing company takes on debt of half its market cap to buy a large money-losing, slow-growing company, in an only marginally related field, and appoints the CEO of the slow-growing, money-losing company to be its CEO.)
Saul

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Carrying it as a “Hold” instead of a buy

It is a challenge not just for individual investors even for professionals. Accepting a decision didn’t play out as expected and taking the loss and moving on, requires confidence in one’s ability to make a profit elsewhere.

Often, investors, yours sincerely included, cling on and hoping the story will get better or somehow they can miraculously get out of the situation with profit.

It is one thing to know what is the right decision to make, it still requires courage to pull the trigger. On this kudos Saul.

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It is a challenge not just for individual investors even for professionals. Accepting a decision didn’t play out as expected and taking the loss and moving on, requires confidence in one’s ability to make a profit elsewhere.

Often, investors, yours sincerely included, cling on and hoping the story will get better or somehow they can miraculously get out of the situation with profit.

The issue with MF’s rec-based services is slightly different though: they are staffed to have enough analysts to find and publish a steady flow of recommendations over time. They do not have the staff to follow their recs for very long, if at all. For that, you need to go for one of the (much more expensive) Portfolio services, where there is on-going analysis of all of their holdings.

IIRC last year, MF wanted to launch a product that was based on investing in a couple of dozen companies at the same time and holding them for about 5 years. To support this, they pulled analysts in from all over MF for several months to find the recs … but were then able to release them back to whence they came once the product was launched.

I am NOT saying that the MF rec style of buy and hold is bad…just that it has practical limitations due to the realities of MF’s business and access to talent. One should understand the tools that can best help one’s own process.

Cham

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you need to go for one of the (much more expensive) Portfolio services, where there is on-going analysis of all of their holdings.

My comment is not about Fool’s offerings. I am not a subscriber to any service and have no idea about what you are talking.

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“…they are still carried as a “Buy” recommendation as far as I can tell by one of my favorite MF services.”

At the end of their latest free article about SNCR (4/11/18), they mention that they still recommend the stock.

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