UBNT (for those of you still in)

Hi Fools,

Here is a nice summary of the company from the research section of Fidelity for those of you who haven’t been around a couple of years ago:

Ubiquiti Networks, Inc. develops networking technology for service providers, enterprises, and consumers. It focuses on three principal technologies, including high-capacity distributed Internet access, unified information technology, and consumer electronics for home and personal use.

The company’s service provider product platforms offer carrier-class network infrastructure for fixed wireless broadband, wireless backhaul systems, and routing; and enterprise product platforms provide wireless LAN infrastructure, video surveillance products, switching and routing solutions, security gateways, and other WLAN products, as well as offers consumer products under the Ubiquiti Labs brand name.

Its proprietary products and solutions include radios, antennas, software, communications protocols, and management tools to deliver wireless broadband access and other services. The company also provides technology platforms, such as airMAX platform, which include proprietary protocols that contain technologies for minimizing signal noise; EdgeMAX, a disruptive price-performance software and system routing platform; airFiber, a point-to-point radio system; and UFiber GPON platform to build high speed fiber Internet networks.

In addition, it offers UniFi Enterprise WLAN; UniFi Video, a video surveillance system; UniFi Switch that deliver performance, switching, and PoE+ support for enterprise networks; and UniFi Security Gateway that provide routing and network security, as well as develops AmpliFi platform, a Wi-Fi system solution for connected homes.

Further, Ubiquiti Networks, Inc. offers embedded radio products; and mounting brackets, cables, and power over Ethernet adapters.

It serves customers through a network of approximately 100 distributors and online retailers worldwide. The company was formerly known as Pera Networks, Inc. and changed its name to Ubiquiti Networks, Inc. in 2005. Ubiquiti Networks, Inc. was incorporated in 2003 and is headquartered in New York, New York.

Here is a very short list of reasons Ubiquiti Networks is very successful:

  1. It creates the best quality, lowest cost networking products that disrupt existing market leaders
  2. It sells these products through channels that don’t require direct sales, which enables lower prices and allows a lot of revenue to drop to the bottom line
  3. It buys back a lot of shares, doesn’t dilute existing shareholders and even pays a dividend
  4. Its CEO has very high ownership of the company’s stock

Clearly, there is some earnings leverage happening right now. Sales are up about 22%.


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
				
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%

But adjusted earnings are up almost 60%:


AEarn	Mar	Jun	Sep	Dec		YoY	Mar	Jun	Sep	Dec
2011	13.2	18.3	21.7	24.9		2011				
2012	28.1	27.9	13.6	18.3		2012	113.2%	52.3%	-37.5%	-26.4%
2013	21.1	29.5	41.2	42.6		2013	-25.0%	5.9%	203.8%	132.5%
2014	45.2	50.2	43.4	47.1		2014	114.1%	70.0%	5.3%	10.5%
2015	42.0	44.1	45.5	49.7		2015	-7.1%	-12.0%	4.8%	5.5%
2016	53.0	58.2	65.5	60.1		2016	26.3%	31.8%	44.0%	20.9%
2017	64.6	61.0	74.9	59.6		2017	21.9%	4.8%	14.4%	-0.8%
2018	76.0	74.8	86.2	95.1		2018	17.6%	22.6%	15.1%	59.6%

And adjusted EPS is up 75%:


AEPS	Mar	Jun	Sep	Dec		YoY	Mar	Jun	Sep	Dec
2011	0.13	0.18	0.23	0.27		2011				
2012	0.30	0.30	0.15	0.20		2012	130.8%	66.7%	-34.8%	-25.9%
2013	0.24	0.33	0.46	0.48		2013	-20.0%	10.0%	206.7%	140.0%
2014	0.50	0.56	0.48	0.53		2014	108.3%	69.7%	4.3%	10.4%
2015	0.47	0.50	0.51	0.58		2015	-6.0%	-10.7%	6.3%	9.4%
2016	0.63	0.69	0.79	0.72		2016	34.0%	38.0%	54.9%	24.1%
2017	0.78	0.75	0.92	0.76		2017	23.8%	8.7%	16.5%	5.6%
2018	0.98	1.01	1.17	1.33		2018	25.6%	34.7%	27.2%	75.0%

Enterprise Revenue surpassed Service Provider Revenue in the middle of 2017 and has been growing at a nice clip:


SPRev	Mar	Jun	Sep	Dec		EntRev	Mar	Jun	Sep	Dec
2013	75.5	90.1	94.2	111.5		2013	7.7	11.1	35.5	27.0
2014	121.0	124.0	107.3	99.7		2014	27.3	32.0	42.8	53.4
2015	106.2	104.8	103.4	109.6		2015	41.2	40.5	48.0	52.3
2016	96.3	109.0	120.6	115.6		2016	71.1	76.7	84.1	98.0
2017	104.7	114.7	119.9	119.9		2017	113.6	114.0	126.0	131.0
2018	100.9	105.9	105.0	113.2		2018	149.5	163.8	177.9	194.1
										
Grth	Mar	Jun	Sep	Dec		Grth	Mar	Jun	Sep	Dec
2013						2013
2014	60.3%	37.6%	13.9%	-10.5%		2014	256.0%	188.2%	20.7%	98.0%
2015	-12.2%	-15.5%	-3.6%	9.9%		2015	50.7%	26.5%	12.1%	-2.1%
2016	-9.4%	4.0%	16.6%	5.5%		2016	72.5%	89.5%	75.1%	87.3%
2017	8.7%	5.2%	-0.6%	3.7%		2017	59.8%	48.6%	49.8%	33.7%
2018	-3.7%	-7.6%	-12.5%	-5.6%		2018	31.6%	43.8%	41.3%	48.2%

It’s difficult to tell from the figures whether or not the Enterprise Revenues are accelerating, because of the lumpiness of the growth in Q42017 and Q12018.

Pera isn’t updating guidance quarterly. About three years ago, he basically said that one needs to look at UBNT over a three years period and not get distracted by quarterly numbers. There have been some mistakes made that caused quarterly numbers to suffer. But it looks like his statement back then turned out to be accurate. The company is enjoying a secular trend that will require just about everything to be connected wirelessly and, with the upcoming rise of 5G, should be more prevalent.

Today’s adjusted P/E is about 32, which is the highest since I’ve been following the company. However, we should see a lot of earnings leverage over the next three quarters before comps get a bit more difficult. This is probably why the stock has run up so quickly from $120 to $143.


Month	EPS	AEPS	AEPS	YoY	TTM EPS	Hi	Lo	Close	P/E	P/E Hi	P/E Lo	1Yr. Peg
Mar-11		0.13	0.13									
Jun-11		0.18	0.18									
Sep-11		0.23	0.23									
Dec-11		0.27	0.27		0.81	$23.04	$16.25	$18.23	22.5	28.4	20.1	
Mar-12		0.30	0.30	131%	0.98	$33.97	$17.33	$31.63	32.3	34.7	17.7	
Jun-12		0.30	0.30	67%	1.10	$35.99	$11.19	$14.25	13.0	32.7	10.2	
Sep-12		0.15	0.15	-35%	1.02	$15.26	$7.80	$11.90	11.7	15.0	7.6	
Dec-12		0.20	0.20	-26%	0.95	$13.15	$9.97	$12.14	12.8	13.8	10.5	0.74
Mar-13		0.24	0.24	-20%	0.89	$16.66	$11.39	$13.72	15.4	18.7	12.8	-1.68
Jun-13		0.33	0.33	10%	0.92	$20.89	$12.81	$17.54	19.1	22.7	13.9	-1.17
Sep-13		0.46	0.46	207%	1.23	$37.40	$17.17	$33.59	27.3	30.4	14.0	1.33
Dec-13		0.48	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	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	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	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	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	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	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	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	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	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	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	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	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	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	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	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	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	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	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	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	1.33	75%	4.49	$115.44	$82.72	$99.41	22.1	25.7	18.4	0.70

Going back to the adjusted earnings table above, one can see the sequential earnings increases of about $0.15 per quarter. If they continue this for the next four quarters, the forward P/E drops to about 24, assuming share buybacks continue. This is still historically expensive. But for this company that is executing so well, this is not too surprising. Also, earnings may accelerate even faster over the next year or so. This is why I have mixed feelings about the future stock price.

At this point, I’m not buying any more shares and I’m not selling any either, unless earnings don’t continue to accelerate throughout the year. In fact, it’s been quite a while since I bought any shares. However, with the appreciation in share price and my refusal to sell my AAPL, MIDD, CMG and most of my AMZN shares, it has become a relatively larger part of my portfolio (currently almost 8%).

DJ

19 Likes

DJ,

Thank you for posting that information on Ubiquity Networks. I have been steadfast in these shares since late 2013 and bought more aggressively in 2014 when the shares turned downward. My average cost is $39/sh.

Honestly these UBNT shares went nowhere for a long while while Pera sorted everything out and the predictable short attacks came from Citron and others. I know many folks on this board sold out and determined there were better places for their shares which I completely understand and respect.

At the end of the day, I did not sell any shares in my full position given I believed in Pera’s heavily invested position (as I continue to with Tesla’s Musk and other similarly visionary CEOs), the differentiated business model and the market opportunity of the Company. My position has now grown to > a 10% position in my portfolio given the near 4X share appreciation since my purchases. To me, this investment, like so many other of our investments in Fooldom, is an example of holding on to something with conviction and ignoring the short-term noise while the CEO and team executes their strategy. David Garner always emphasizes that the biggest gains come from extended holding periods where you can let winners run. I believe this is such a name.

I think those are invaluable words of wisdom, that, when combined with Saul’s principles of keeping a smaller basket of 10-15 high-conviction, high-growth stock portfolio can lead to tremendous performance, often far in excess of market returns as we have collectively proven on this board for YEARS now.

I believe NTNX and ZS are two of the additional names in many of our porfolios that can break out very meaningfully in coming quarters.

Continued good luck to all. I am truly so appreciative of this intelligent, unselfish board led by Saul with his unique, logical and common sense investing approach. What a blessing.

–Rockleppard

7 Likes

At the end of the day, I did not sell any shares in my full position given I believed in Pera’s heavily invested position (as I continue to with Tesla’s Musk and other similarly visionary CEOs), the differentiated business model and the market opportunity of the Company. My position has now grown to > a 10% position in my portfolio given the near 4X share appreciation since my purchases. To me, this investment, like so many other of our investments in Fooldom, is an example of holding on to something with conviction and ignoring the short-term noise while the CEO and team executes their strategy. David Garner always emphasizes that the biggest gains come from extended holding periods where you can let winners run. I believe this is such a name.

I am chiming in here to get this post in before whatever announcement is upcoming tonight at 5 pm eastern for Tesla and before their bond payment is due tomorrow. My purpose with this post is to clarify a few key differences between the 2 owner/CEOs mentioned in the post up-thread, as I have some familiarity with both, along with a few key differences in their financials. Discussions of quality of management and some financial aspects for revenue growth companies should be on-topic for this board, to the best of my understanding.

Now for the comparisons:
-Pera boot-strapped Ubiquiti, starting the company at night while still employed by Apple as he saw a simple way to make more powerful wi-fi routers. He did take some venture funding at some point, but I think those funds got paid back maybe in 2017 or early 2018.
-Musk did not start Tesla (Martin Eberhard and Marc Tarpenning did - https://en.wikipedia.org/wiki/Tesla,_Inc.). Musk did provide financing for Tesla very early on in their life as a company, and later forced Eberhard out and ultimately drive Tesla to what was portrayed in this Charles Duhigg-authored article in Wired “Dr. Elon and Mr. Musk” (https://www.wired.com/story/elon-musk-tesla-life-inside-giga…).

-Pera owns more than 70% of the outstanding shares of Ubiquiti, which is about $7 billion with today’s ~$145/share price for UBNT (market cap of ~$10.2B).
-Musk owns about 20 to 21% of the outstanding shares of Tesla, which is about $12 billion as of today’s $312/share price for TSLA (market cap of ~$54B).

-UBNT buys back shares, and now even pays a dividend as well.
-TSLA issues new shares (up until the year 2017 at least), and has substantial stock-based compensation that causes further dilution. Buybacks and dividends are frankly not in TSLA’s near-term future. I will recognize and note that dividends for growth companies are quite a rarity.

-UBNT has a track record of a number of years of GAAP and adjusted earnings (on a whole-year basis).
-TSLA has yet to achieve a full-year profit, since being founded in 2003.

Those are some of the main things I see as key differences between the 2 CEOs.

-TQP

I currently do not have a position in UBNT. I’m wondering if after the drop from the last earnings report, to today’s price of $128.62 if that is a good point to enter a small position or if it would be better to concentrate further with possibly AYX or wait for earnings on MDB and ESTC to see if there is a drop for further entry on either of those stocks.

Opinions?

I’m of the camp that the company is a good buy at this level, but I’m not sure many others would view UBNT as a viable stock. I don’t know if you subscribe to Bert Hochfeld’s service, but he recommended for his income/stability portfolio on Monday this week. If you don’t subscribe to his service, I find it very, very valuable and you should consider.

I actually emailed Bert over the weekend with my thoughts on Ubiquiti and believe that prompted his recommendation. In essence, he generally agrees with my assessment on the potential here.

With the company reiterating the high end of guidance, next quarter’s growth should be around 20% and you can expect earnings leverage greater than that as they have shown for many quarters.

A word of caution, the CEO has shunned Wall Street. There are no conference calls and only annual guidance. Earnings releases contain very little information and I don’t even believe the company announced when earnings will be released last quarter…just released them out of the blue. That fact is beset against Pera’s (CEO) alignment with shareholders as he holds some 80% of the company.

I suspect the shares will gain traction if the company hits the high end of their guidance as reiterated.

Hope that helps.

A.J.

2 Likes

Alright thanks for your input.
I’m still undecided. I like how much ownership the founder has but worried about the trade war impact for the short term, or at least the fear investors may have over it for this sector.