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.
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!
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.