UBNT Legal Issues

Man, I hate legal issues. It is hard enough work analyzing companies, let alone adding the legal soiree into the mix.

First, here is the complaint filed by Synopsys.

https://publiccompanylitigation.files.wordpress.com/2017/02/…

The high points of this have already been discussed in an earlier thread (just providing the link).

One has to assume Synopsys knows when its software is being used illegally, and infer from that UBNT is in the wrong here. The claim asserts Synopsys previously contacted UBNT on the matter as well.

Let’s take what appears to be a worst case scenario here. 39,000 x $2,500 = $97,500,000. Or about 16% of the company’s total cash reserves, most of which is parked overseas (for now). The cash has been piling up on the balance sheet even while the business was struggling. Granted, this is cash that could be used to return to shareholders in the future, but paying what seems to be a very worst case scenario, wouldn’t cripple the company.

The bigger damage as an investor could be the reputation of the company. It has had its share of mistakes along the way in terms of poor internal controls. Will investors flee the name and how long will it take the stock to come back? I cannot necessarily answer that, but will say this:

If the business shows the type of growth we are expecting and have seen recently, investors are much likelier to forget the mishaps. The prior mishaps were executional and caused a fairly long stagnation within the business and the stock was discarded by many during that time. Amazingly, when growth resumed, so did the price escalation. Here we have a situation that seems unlikely to impact growth.

My guess is we see some heads roll at UBNT and checks and balances put in place to remove this behavior.

The company currently sits with a PE of just under 18 and is growing like mad. It still seems like a good risk reward proposition.

Take care,
A.J.

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Man, I hate legal issues.

Hi AJ,
I wouldn’t worry excessively. Look at it this way: Arista is being sued in multiple suits by a much, MUCH, more formidable opponent (Cisco), with much deeper pockets, who is accusing Arista of having stolen the basic components of Arista’s company from Cisco, and Cisco has been basically trying to shut Arista down. Arista was up 18% in a day after earnings. Do you think that, by comparison, Ubiquiti being accused of using a piece of software without paying a licensing fee is worth dropping the price by 23%???

Have you ever heard of one tech company suing another actually damaging the sued company? After years of waiting for the case to go to court. How long has Cisco been waiting, while Arista just keeps growing? Just wondering.

Saul

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Arista is being sued in multiple suits by a much, MUCH, more formidable opponent (Cisco), with much deeper pockets, who is accusing Arista of having stolen the basic components of Arista’s company from Cisco, and Cisco has been basically trying to shut Arista down.

That’s a good point, Saul. And Cisco has even won a lot of those lawsuits and it still hasn’t really slowed down ANET.

Matt
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Do you think that, by comparison, Ubiquiti being accused of using a piece of software without paying a licensing fee is worth dropping the price by 23%???

So are you saying, Saul, that you are not concerned about UBNT’s legal issues? It sounds like that is what you are saying but please correct me if I"m wrong.

For myself, I’m not real concerned about the legal issues, but I am concerned about the 23% price drop. After all, at least in my experience, I could have full confidence in any given company, but if Mr. Market is worried, whether justified or not, and is selling shares like hotcakes, that doesn’t help the value of my shares.

The stock did not drop 23% because of this legal action, but I am sure it contributed. It had more to do with the last quarterly report. We have spoken about the results so I will not go over them again but we can just call them mixed. That had more to do with initial drop than anything… I think this legal action is currently holding the price down though.

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So are you saying, Saul, that you are not concerned about UBNT’s legal issues?

Hi Speedy, Compared to Arista’s potential problems this is nothing more than a mosquito bite. The company suing Ubiquiti is just looking for money, and would probably be happy with a tenth of what it is asking for (which would still be $10 million). But that’s just my opinion.
Saul

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My guess is we see some heads roll at UBNT and checks and balances put in place to remove this behavior.

I agree with the first part, Pera has chopped heads before. However, the second part is, IMO, not likely. Quite likely to remove this specific behavior. But checks and balances (i.e., management and oversight) as part of corporate culture? No. I would expect future problems and more heads stuck on pikes and placed at the front entrance.

KC, no position UBNT

Quite likely to remove this specific behavior. But checks and balances (i.e., management and oversight) as part of corporate culture? No. I would expect future problems and more heads stuck on pikes and placed at the front entrance.

I think we will likely disagree here. The company is lean, yes. Another word that comes to mind is “naïve.” But until their naivete stings them, there is no reason to adjust. You seem to claim the company will not adjust and that is where we differ.

Let’s look at the accounting disaster which robbed the company of $20M IIRC. Did Pera sit back and do nothing? The answer is no. Additional oversight from a 3rd party was initiated and is something the company still pays for today, albeit dwindling. A “CFO” was put in place. I think the individual is actually called a CAO (Chief Accounting Officer) to ensure the company wouldn’t be defrauded again.

Listen, I don’t disagree the company “flies by the seat of its pants.” Where we disagree is likely twofold. First, I see that as an advantage. Second, I see a company who looks to correct it past mistakes. I believe you would adamantly disagree with both of those things from what you’ve written.

Horse races and all.

Take care,
A.J.

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I think we will likely disagree here

Is it me misreading or the thinking is as long as sales increases the rest of the issues don’t matter? In my mind the failure on other areas should be viewed as “execution” issues and that warrants discount until the company can prove they can get their act together.