Fools,
To me, this was a very good quarter.Pera has always said that one should look at the company within the context of a three years timeframe and not quarterly.
Revenues increased 13.8% year over year. The increase is significantly less than we’ve seen in the previous quarter. This could explain the big drop in the share price:
Rev Mar Jun Sep Dec
2011 51.2 67.6 79.2 87.8
2012 91.7 94.9 61.5 74.9
2013 83.2 101.2 129.7 138.4
2014 148.3 156.0 150.1 153.1
2015 147.5 145.3 151.4 161.9
2016 167.4 185.7 204.8 213.5
2017 218.4 228.6 245.9 250.8
2018 250.4 269.8 282.9 307.3
2019 284.9
Grth Mar Jun Sep Dec
2011
2012 79.2% 40.4% -22.3% -14.7%
2013 -9.3% 6.7% 110.8% 84.8%
2014 78.4% 54.1% 15.7% 10.6%
2015 -0.6% -6.9% 0.9% 5.7%
2016 13.5% 27.8% 35.3% 31.9%
2017 30.4% 23.1% 20.1% 17.5%
2018 14.7% 18.0% 15.1% 22.5%
2019 13.8%
Service Provider revenues are growing again after four quarters of contraction. It’s good to see this, especially with Enterprise revenue growth dropping to 17.4% from 31.6% (YoY) and 48.2% (sequentially):
SPRev Mar Jun Sep Dec
2013 75.5 90.1 94.2 111.5
2014 121.0 124.0 107.3 99.7
2015 106.2 104.8 103.4 109.6
2016 96.3 109.0 120.6 115.6
2017 104.7 114.7 119.9 119.9
2018 100.9 105.9 105.0 113.2
2019 109.4
Grth Mar Jun Sep Dec
2013
2014 60.3% 37.6% 13.9% -10.5%
2015 -12.2% -15.5% -3.6% 9.9%
2016 -9.4% 4.0% 16.6% 5.5%
2017 8.7% 5.2% -0.6% 3.7%
2018 -3.7% -7.6% -12.5% -5.6%
2019 8.4%
EntRev Mar Jun Sep Dec
2013 7.7 11.1 35.5 27.0
2014 27.3 32.0 42.8 53.4
2015 41.2 40.5 48.0 52.3
2016 71.1 76.7 84.1 98.0
2017 113.6 114.0 126.0 131.0
2018 149.5 163.8 177.9 194.1
2019 175.5
Grth Mar Jun Sep Dec
2013
2014 256.0% 188.2% 20.7% 98.0%
2015 50.7% 26.5% 12.1% -2.1%
2016 72.5% 89.5% 75.1% 87.3%
2017 59.8% 48.6% 49.8% 33.7%
2018 31.6% 43.8% 41.3% 48.2%
2019 17.4%
This change in growth was not addressed on the call. However, Pera mentioned being unhappy with the operations and not being able to meet demand. Just how much demand they cannot fulfill remains to be seen. Here is what he had to say:
Moving forward, we continue to expand the application use and get into more verticals and then we need to continue improving our operations to just meet the demand, which we are not doing yet.
So where does this lower growth leave us? Certainly, with a price of $170 per share, growth rates slowing and a historically hi p/e of almost 36, the stock was set up for a nice drop. The quarter’s earnings, combined with the drop in price has brought us to a p/e of about 29.2.
Now, let’s look at adjusted earnings (adjusted takes away last year’s tax benefit from GAAP numbers - otherwise, GAAP and adjusted are almost identical):
AEPS Mar Jun Sep Dec
2011 0.13 0.18 0.23 0.27
2012 0.30 0.30 0.15 0.20
2013 0.24 0.33 0.46 0.48
2014 0.50 0.56 0.48 0.53
2015 0.47 0.50 0.51 0.58
2016 0.63 0.69 0.79 0.72
2017 0.78 0.75 0.92 0.76
2018 0.98 1.01 1.17 1.33
2019 1.26
YoY Mar Jun Sep Dec
2011
2012 130.8% 66.7% -34.8% -25.9%
2013 -20.0% 10.0% 206.7% 140.0%
2014 108.3% 69.7% 4.3% 10.4%
2015 -6.0% -10.7% 6.3% 9.4%
2016 34.0% 38.0% 54.9% 24.1%
2017 23.8% 8.7% 16.5% 5.6%
2018 25.6% 34.7% 27.2% 75.0%
2019 28.6%
So with 13.8% in revenue growth we got 28.6% in earnings growth. This is really nice. One wonders what will happen when they could actually fulfill demand properly. Remember the December quarter revenues wer up 22.5% and the earnings were up about 75%. Even with lower growth, we should see earnings grow nicely.
Even with the price drop, Ubiquiti is richly valued. However, it looks like good earnings increases will be present as long as revenue grows, which is very likely. This, combined with share repurchases, makes Ubiquiti a nice investment (much nicer a couple of years ago - but nice nonetheless).
I came close to lightening my position prior to earnings due to valuation. But I didn’t want the hassle of selling, paying taxes and trying to buy back. The price probably wouldn’t have dropped as much as it did if the p/e hadn’t been so high.
Also, Ubiquiti only provides annual guidance and said they would hit the high end of their range for the year ending this quarter. The top of the range is $1.2 billion. The first three quarters show $1.145 billion, which means that only need to have $55 million of revenues to hit the high end of guidance. Revenues would have to decrease by almost 80% for this to happen. Guidance is meaningless. Pera wants us to focus on three years.
Here are the historical valuation numbers:
Month EPS AEPS YoY TTM EPS Hi Lo Close P/E P/E Hi P/E Lo 1Yr. Peg
Mar-11 0.13
Jun-11 0.18
Sep-11 0.23
Dec-11 0.27 0.81 $23.04 $16.25 $18.23 22.5 28.4 20.1
Mar-12 0.30 131% 0.98 $33.97 $17.33 $31.63 32.3 34.7 17.7
Jun-12 0.30 67% 1.10 $35.99 $11.19 $14.25 13.0 32.7 10.2
Sep-12 0.15 -35% 1.02 $15.26 $7.80 $11.90 11.7 15.0 7.6
Dec-12 0.20 -26% 0.95 $13.15 $9.97 $12.14 12.8 13.8 10.5 0.74
Mar-13 0.24 -20% 0.89 $16.66 $11.39 $13.72 15.4 18.7 12.8 -1.68
Jun-13 0.33 10% 0.92 $20.89 $12.81 $17.54 19.1 22.7 13.9 -1.17
Sep-13 0.46 207% 1.23 $37.40 $17.17 $33.59 27.3 30.4 14.0 1.33
Dec-13 0.48 140% 1.51 $46.88 $33.61 $45.96 30.4 31.0 22.3 0.52
Mar-14 0.50 0.50 108% 1.77 $56.85 $37.50 $45.45 25.7 32.1 21.2 0.26
Jun-14 0.55 0.56 70% 2.00 $47.92 $30.50 $45.19 22.6 24.0 15.3 0.19
Sep-14 0.42 0.48 4% 2.02 $50.00 $36.98 $37.53 18.6 24.8 18.3 0.29
Dec-14 0.52 0.53 10% 2.07 $37.92 $26.98 $29.64 14.3 18.3 13.0 0.39
Mar-15 0.46 0.47 -6% 2.04 $32.97 $25.67 $29.55 14.5 16.2 12.6 0.95
Jun-15 0.05 0.50 -11% 1.98 $34.28 $25.50 $31.31 15.8 17.3 12.9 -15.81
Sep-15 0.61 0.51 6% 2.01 $37.10 $28.50 $33.89 16.9 18.5 14.2 -34.06
Dec-15 0.57 0.58 9% 2.06 $35.96 $28.69 $31.69 15.4 17.5 13.9 -31.84
Mar-16 0.62 0.63 34% 2.22 $35.00 $25.75 $33.27 15.0 15.8 11.6 1.70
Jun-16 0.69 0.69 38% 2.41 $41.21 $32.06 $38.66 16.0 17.1 13.3 0.74
Sep-16 0.86 0.79 55% 2.69 $54.73 $37.06 $53.50 19.9 20.3 13.8 0.65
Dec-16 0.72 0.72 24% 2.83 $59.43 $48.25 $57.80 20.4 21.0 17.0 0.74
Mar-17 0.77 0.78 24% 2.98 $64.62 $46.49 $50.26 16.9 21.7 15.6 0.71
Jun-17 0.74 0.75 9% 3.04 $53.27 $45.71 $51.97 17.1 17.5 15.0 1.31
Sep-17 0.92 0.92 16% 3.17 $67.80 $47.78 $56.02 17.7 21.4 15.1 1.47
Dec-17 -0.66 0.76 6% 3.21 $73.21 $54.75 $71.02 22.1 22.8 17.1 2.87
Mar-18 1.32 0.98 26% 3.41 $82.30 $49.40 $68.80 20.2 24.1 14.5 1.66
Jun-18 0.94 1.01 35% 3.67 $89.99 $68.38 $84.72 23.1 24.5 18.6 1.46
Sep-18 1.16 1.17 27% 3.92 $101.33 $79.55 $98.86 25.2 25.8 20.3 1.14
Dec-18 1.09 1.33 75% 4.49 $115.44 $82.72 $99.41 22.1 25.7 18.4 0.70
Mar-19 1.25 1.26 29% 4.77 $151.36 $95.64 $149.71 31.4 31.7 20.1 1.05
One more thing, the amount of shares outstanding is continually decreasing:
WA Shrs Mar Jun Sep Dec
2011 102.5 103.0 93.5 93.4
2012 94.2 94.2 92.9 90.1
2013 89.0 89.1 89.5 89.7
2014 89.8 89.8 89.9 89.7
2015 89.4 89.1 88.5 86.1
2016 84.7 83.8 83.1 82.2
2017 83.3 81.9 81.7 77.7
2018 78.0 74.3 74.0 71.4
2019 70.7
All of these data are historical. If Pera continues to execute well and the demand for wireless solutions continues to increase, especially when 5G arrives, we should see the share price follow. One day, Ubiquiti may be seen as a case study for a future edition of The Innovator’s Dilemma.
I am happy to own shares in the company now and expect to be an owner for quite a while, unless of course Pera take the company private, which may well happen.
DJ