Someone on another board explained why he was convincing himself to hold his position in Synchronoss in spite of all of this. Here’s what I wrote to him:
Since you were explaining why you were staying in SNCR, maybe I should explain why I’ve been selling my shares.
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?
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.
They are taking on new debt of $900 million which is roughly half their capitalization.
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?
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.
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, a huge money-losing appendage, and a CEO who is also an unknown quantity. Just saying. You may convince yourself you should stay in (because you are already in?), but not me. It may do fine, but it will do it without me.
Someone on another board explained why he was convincing himself to hold his position in Synchronoss in spite of all of this. Here’s what I wrote to him:
Everyone I am the other person who posted who Saul says is “convincing” myself of keeping the stock.
Let me clear it up I am not convincing myself of anything. I am merely doing my proper due diligence on the company being acquired before making a rash decision to go out and sell all my shares. I was just trying to share my thoughts and findings so far. Sorry if that was somehow offensive to you or anyone else.
I did the exact same thing with bank of internet when everyone else thought the sky was falling. Well I decided the sky was not falling and bought a very large sum of shares taking advantage of the opportunity below $15. This is not BOFI and is a very different situation entirely. I am just doing my proper research before making a decision and yes sometimes that leads to a sell.
We both have very different investing styles and we both get very good returns from our chosen styles. I just choose not to share mine all the time. I respect your decision to sell and understand your reasoning behind it. I wish you the best of luck.
I am thinking the market is more scared of all the uncertainty it brings more then anything. I think it could be a sell and ask questions later sort of reaction. Personally I haven’t sold a single share yet and just sitting back and diving into Intralinks as a company. I just finished going through the last annual report and starting to go through some of the conference call transcripts. I want to get a good grasp on what the company does and how the CEO conducts business before making a decision.
So far I feel I am understanding the technology fairly well and I can see how this company can be a good fit for Synchronoss. It appears as if Synchronoss may have a good secure mobile platform though lacked the security in transmission. They are buying out Intralinks to finish out their offering. This will also give them an instant sales team ready to sell the full offering along with a list of current Intralinks customers to upsell the new Synchronoss technology.
Overall I am still undecided and still doing my research. I will patiently hold for now and if everything looks good this dip might present a nice opportunity for those who have the patience to wait it out. I think there might have been a lot of weak hands in the stock hoping to ride up the turnaround as it sounded pretty appealing. This acquisition may have extended the turnaround wait time by a bit. They are going to have to invest quite a bit of time and resources integrating the company operations and the technology. Though one thing that does make me far more comfortable is the fact that Mr. Waldis isn’t leaving. He is still staying with the company just in a bit less involved role. Who knows maybe he had some personal issues come up that is consuming his time. Maybe he is just getting burnt out and looking to retire. Either way at least it should be a fairly smooth transition.
I just thought I would share the post being referenced. Keep in mind for each buyer there is also a seller. It is nice to hear both sides of the story. Maybe I will sell maybe I will hold. Either way I will make that decision for myself and I will hold myself accountable for however it may turn out.
A very interesting thread that highlights the difficulty of investing in technology. The problem is that we are sitting on the right edge of the chart and we don’t have a rear view mirror that looks into the future. It’s all guesswork, intelligent guesswork but guesswork nonetheless. A big disruption like the one you guys are talking about is a good time to put the money in a safe-box until the situation plays out.
In this age, technology and finance are the two main driving forces of the economy and both have great expectation as industries and great risks individually as companies. How to play the game while keeping safe? In finance I stick to businesses that don’t carry a credit risk, toll takers like credit cards with no loan portfolio [V, MA]. In technology I decided on ETFs that diversify the risk to acceptable levels while producing historically excellent returns [PSCT, XSD]. Between these two ETFs I’m invested in 132 high tech stocks.
I am merely doing my proper due diligence on the company being acquired before making a rash decision to go out and sell all my shares. I was just trying to share my thoughts and findings so far. Sorry if that was somehow offensive to you
Gosh no, Soth, you were certainly not being offensive to me. You were simply explaining why you were staying for now, and I was explaining why I was getting out. I purposely didn’t mention your name on this board so as not to cause any embarrassment to you since you hadn’t posted it here. In fact, what you had written had helped to solidify my opinion:
I think there might have been a lot of weak hands in the stock hoping to ride up the turnaround as it sounded pretty appealing. This acquisition may have extended the turnaround wait time by a bit. They are going to have to invest quite a bit of time and resources integrating the company operations and the technology.
Yes, the turnaround did look very appealing to ride upwards (though why you called those who recognized that weak hands I can’t imagine.)
Yes, the ride up the turnaround is now postponed if not canceled.
Yes, the turnaround wait time will be extended - by at least a year, according to management.
Yes they will have to invest an enormous amount of time and resources to integrate a money-losing slow-growing huge acquisition. And these things always cost more than anyone expected, and synergies don’t always pan out.
Sorry if anything I wrote seemed harsh. I was angry at the company’s management, not you.
Holy cow I love this thread. Saul and soth, thank you both for sharing your thoughts!
This is a great example of something I’ve recently learned (from Saul): go after the low hanging fruit. Know when to say something is “too hard” and stay away from that kind of company. I’m trying to load up on companies whose futures (near AND long term) are as certain as possible. Some are more certain than others, of course. It’s hard to even imagine a world without Amazon…where as a lot of people have never heard of Shopify. But the business model has a lot to do with the “certainty” vs “too hard” decision.
Even with the principle in place, it’s still a lot harder that it might seem to make the call on whether or not a stock is “too hard.” There are a lot of great companies but the stock is too pricey. There are zillions of bad companies.
SNCR is an interesting case. Lots of growth potential. It’s actually profitable. The company seems to have been run well thus far. They have plenty of demand for their product – even with the model changing a bit, it seems the market for their new stuff is also good. At a PS around 3, the stock is very cheap for a company that has a lot of recurring revenue and plans to grow as fast as it does (now).
But what I hear Saul saying is that it’s now in the “too hard” category. This is no longer the company I was invested in. Being myself fairly new at analyzing companies at this level, maybe I just don’t know any better, but because of everything I said in the above paragraph, I’m optimistic…even despite knowing that this should probably go in the “too hard” category. Please help me with that…maybe even a hypothetical future scenario would help. What do you see happening to this company in the worst case?
Not professionally. I do have a 150 ton yacht captain’s sports license from Venezuela. When I was first on CompuServe they used numeric user names. A fellow on the board used to call me Captain Caracas and when they started using text user names I shortened it to CaptainCCS. CCS are the call letters for the Caracas international airport.
Sailing is the best thing I learned in college, on the Charles river. To be out at sea is wonderful.
Yes, the turnaround did look very appealing to ride upwards (though why you called those who recognized that weak hands I can’t imagine.)
When I mentioned weak hands I was clearly (in my thoughts) thinking about the wallstreet “pros” who can’t seem to think more then a quarter in advance. The ones who likely bought in right after the latest call driving the price up. I was also referring to those who may have been following others insights not necessarily understanding the company. Could my word choice have been better? Yes it probably could though admittedly I have never been the greatest at conveying my thoughts in writing. That is the main reason I rarely post.
Also just to give a little background. I spent over 10 years of my life as a software developer developing similar software to that which Synchronoss enterprise is built upon and that which they are acquiring. I feel I have an advantage in this specific instance others may not. I am taking time to learn the software the best I can and imagine why they picked this specific company. I feel I am getting a good grasp on it and feel I understand why the acquisition was made. I also feel given the nature of the software and how it seems to have been built I think it can be integrated with Synchronoss with little trouble. I don’t want to go into detail right now because I don’t feel I can convey my thoughts in a way that would make any since.
Though I do have a major major reservation regarding the company. They are changing the CEO!! This scares me! It scares me a lot. The only thing that makes me feel a little better is the following from the press release…
Stephen G Waldis, Founder and current Chief Executive Officer, will remain active in the company serving as Executive Chairman of the Board, driving strategy, product innovation and oversight for the transformation
I would love to hear others thoughts on what this may actually mean to the company. Is Mr. Waldis staying on as the visionary providing the direction for the company? Maybe the new CEO is coming in to fill areas where Mr. Waldis is lacking in running a business? I don’t know. I need to listen to the conference call again to see if there is any details I may have missed.
Wow, your personal experience with this kind of software certainly makes a big difference. Thanks for sharing that. I’m still scared though by the huge debt that will be incurred, the CEO leaving (as you said), the huge size of the acquisition, and finally the fact that they are acquiring a money losing, slow growing company. But I hope that you are right because I know that a number of our board-mates have decided to hold their positions.