Ubiquiti (UBNT) - New Article by Bert Hochfeld

My favorite article writer just wrote an article about one of my current favorite stocks.

http://seekingalpha.com/article/4030431-ubiquiti-primer-surv…

I’d strongly recommend it! Please be aware that this is one of Bert’s long, multipage deep dives and discussions and the little snippets I include below are only a tiny part of the article. If you are interested in UBNT, read the whole article!

Saul

…Ubiquiti (NASDAQ:UBNT) is a relatively small company in the wireless LAN space that has managed to become successful over the last decade, albeit with some fits and starts. It is a very unique company that has grown without any material sales investment and has margins that are far beyond those of almost any other IT hardware vendor. The company was founded by and is run by a “techie” who has very specific ideas about how to run tech firms that are quite different than those of many other managers in the field. He still owns a majority of the shares and he also owns the Memphis Grizzlies basketball franchise. Last summer it launched a home wireless LAN at what appears to be a disruptive price although its first quarter of availability was constrained by supply issues…For now, the fact is that the September quarter, despite the issues with the launch of the consumer product, was a blowout…;.Ubiquiti’s financial metrics are far different - and far better, than those of its competitors…the company has been able to thrive because the dominant players in the space have not found Ubiquiti to be enough of a threat to cause them to respond in terms of pricing. The math is simply in Ubiquiti’s favor. It still has a market share of less than 5%. It simply isn’t worthwhile for a company like Cisco to cut prices by 30% or more to attempt to stop Ubiquiti’s growth…Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in UBNT over the next 72 hours.

Note that it’s fairly unusual for Bert to indicate that he may initiate a position himself.

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By the way, I’d read the comments after the article too, which I found excellent.

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Ok, surely Bert has found this board.

I own UBNT although, while it comes through my screens, DD gives me pause, especially the short position (25% acc. to FinViz, 30% acc. to Yahoo). I find it difficult to dismiss that although I hope Bert is right. ‘What is the market trying to tell me?’ I muse. And: ‘Should I listen?’.

What else? CEO owns 66% so he owns the company. Is that the reason for a slight air of eccentricity? History of being disorganized, not at all dispelled by the missing formal position of ‘CFO’ which seems to me absurdly and unnecessarily careless of company credibility.

I have not got a clue what the company does or where the competition ambushes are being prepared (I never have with tech.) but, unlike others, I find the company staggeringly cheap on the numbers. I put in growth at 15% but here’s the thing: make it just 8 and it’s still reasonably priced according to my own ratios.

So I have a position, but a wary one. Quite exciting, but not too much excitement please.

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History of being disorganized, not at all dispelled by the missing formal position of ‘CFO’ which seems to me absurdly and unnecessarily careless of company credibility.

I won’t comment on some of the above. Earlier I was going to comment on something Bert wasn’t sure about in his article, but honestly thought there was little merit to my comment.

Bert didn’t know if there would be a CFO hired. As I recall, the CAO is the only hire Pera will take on. He doesn’t believe a CFO is needed at this point. His statements in the past about this are to the point of not needing a public facing persona. He wants someone to control the business and doesn’t care about Wall Street. Owning 67% of the company allows that prerogative.

Take my comments with a grain of salt. They are biased. I’ve always received enjoyment from Pera’s disdain for Wall Street.

Take care,
A.J.

Just to add, for those with a Premium sub. to MS, their ‘Stock Analysis’ write-up is informative.

A.J. - Owning 67% of the company allows that prerogative, yes, but also allows Wall St. to punish it!

But I agree with you that more CEOs should think longer-term and have a disdain for Wall Street. Like Bezos.

Owning 67% of the company allows that prerogative, yes, but also allows Wall St. to punish it!

Strelna - I also agree with you except for the instance where a business just decides to run well in the face of the punishment. At some point folks are bound to see the company for what it is, a highly profitable enterprise.

Take care,
A.J.

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Ubiquity was also recently re-recommended by a MF paid service. Always nice to see.

Saul

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I thought this line from Bert’s article was the best thing I’ve read at least in the last month:

Just to make those numbers work at all is going to require some analytical contortions that would make a pretzel proud.

But I have to say, my big questions about UBNT remain unanswered:

  1. Who is their competition? Bert mentions CSCO, JNPR, and ANET. Sounds like CSCO doesn’t compete with UBNT’s products directly, and maybe the other two don’t either…I gather because UBNT can produce it so cheaply. Do they have ANY direct competitors?

  2. Who are their customers? Specifically, do they have any that are big enough to create a situation like what happened to INFN?

  3. How in the world can they operate spending next to nothing on SG&A and R&D? These were 12% of revenue last quarter COMBINED. Compare that to the others mentioned in the article:

ANET: 43%
JNPR: 43%
CSCO: 37%

12% simply defies comprehension, and I’m just very uncomfortable with this seemingly “too good to be true” operating efficiency.

Bear

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12% simply defies comprehension, and I’m just very uncomfortable with this seemingly “too good to be true” operating efficiency.

It isn’t new. It has been going on for years. It is just a difference in business models. UBNT doesn’t employ anyone to sell their products, just design them. They don’t even employ anyone to fabricate their products.

I realize all of this is quite different. I won’t be able to help assuage your concern. Hell, I liked Pera when everyone hated him and thought he was a complete flop.

Take care,
A.J.

How in the world can they operate spending next to nothing on SG&A?

They don’t have a sales force. They use community-sourcing. They have customers who love their products and tell their friends. Their customers also provide most of their customer support as there are entire community blogs just devoted to previous customers answering other people’s questions about Ubiquiti’s products. Here’s a link to one of their community sources.

https://community.ubnt.com/

I’m afraid that I have no idea what they are talking about but it works obviously. People love their products and their prices and feel it’s a privilege to help others. It’s an amazing system for working with SMB’s, and it sure cuts Sales and Marketing and Customer Support expenses.

Saul

A few things regarding Pera’s attitude on the CFO front as far as my thinking goes. 1 Pera and the company still needs to comply with securities and listings regulations. 2 Pera isn’t the only shareholder - he should do what maximises shareholder value and if not then just take it private. 3 most importantly - he can play fast and loose with his financial staffing and controls if ubiquiti was whiter than white. Their financials controls are not - they lost 46$m to a financial phishing scam in HK recently and that to me doesn’t afford a care free approach to financial control.
Ant
Ps I’m a holder

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