UBNT New Products

Investment Analysis Clubs Saul’s Investing Discussions
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https://seekingalpha.com/article/4077299-ubiquiti-networks-r…

This article reviews all of the new products that UBNT has recently developed or in some cases is currently developing. They sure do have a lot of irons in the fire. Of course, execution will be key and the article talks about some of the stumbles the company has had in the past.

Let’s remember UBNT can afford to fail with some products due to their incredibly low cost structure.

At this point, the big growth is coming from their higher end AP. They continue to move up-market here as well adding in security features next while increasing ASP. When you consider this group of products started out let’s say around $100, moved to roughly $400 and is now approaching $1,000, you can see what this will mean to revenues if the line is successful.

Of course, moving up-market can provide its challenges as well. Time will tell.

Take care,
A.J.

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UBNT fails my "is the price going up " test. If a stock can’t advance in a great bull market (I arbitrarily use the last 6 months) why should it go up in the next 6 months?

A counter example is NVDA making an all time high today on a poor general market day. It was expensive a couple of months ago, it is even more expensive today.

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I hear you Mauser, but I do like to let the business be a guide for my conviction and try not to let the price action enter into the equation.

I feel there is a discrepancy here and the market is missing the future potential of the company. Now, I may be wrong and have been before when thinking like this and have been burned.

Yes, the stagnation of the price in a bull market is frustrating as it has opportunity cost too. However, if my guess on their growth prospects is correct, the price should appreciate rapidly given its current valuation and short interest.

May be wishful thinking. We shall see.

AJ

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Unlike Warren Buffett most of us can only afford to buy stocks rather than the whole company.
Therefore price of the stock is the key factor. Certainly in a rip-roaring bull market. The depths of a recession might be another matter since then prices are down mostly due to non company related factors.

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UBNT was brought up to me years ago. At the time is was described as possibly the next Cisco of communications.

Another element of UBNT that sponsors gushed about was how “cheap” the stock was relative to its growth potential and other tech stocks.

It is now years later, the stock still has not moved much, and people are still saying it has great growth ahead and is cheap, and lots of shorts.

Nothing has changed.

I would posit this question, as Mauser has an excellent point on a stock that cannot move up even with the general market, it is even less likely in a down market. What is it that UBNT has, does, that it does not now do, that it will do in the future?

As for example with Nvidia, a few years ago you could say that NVDA is the key to enabling AI, and the key to enabling autonomous driving, but we are just not there yet. That would be a hypothesis to hold, even against the grain of the market.

With UBNT, what is it that they are not now doing, that they will be doing, say 2 to 3 year from now that makes it worth holding them against the grain of the market?

Tinker

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NVDA stock did not move much and lagged the market for years. During those years the market went up. It only started to move in 2016.

Momentum is a technical factor but a stock staying flat for a while is not an indication of anything.

tj

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With UBNT, what is it that they are not now doing, that they will be doing, say 2 to 3 year from now that makes it worth holding them against the grain of the market?

Breaking into enterprise networking solutions and maybe more into consumer wireless would be 2 primary areas where I think they could see an uptick in success in the next 2 to 3 years.

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<<<Breaking into enterprise networking solutions and maybe more into consumer wireless would be 2 primary areas where I think they could see an uptick in success in the next 2 to 3 years.>>>

That is exactly what was said years ago when UBNT was first introduced to me. Analysts and individual investors had this same story. And boooof, they hit ad quarters, then a good quarter or two, another miss. Back and forth and really, exceptnfornswing trading, it was not a good company to invest in.

That is certainly not a new story for UBNT. It is the exact same story actually.

So why now is UBNT products ready to start to dramatically and sustainably grow in consumer and enterprise markets? They certainly did not do so when the move into enterprise markets started about 5 or more years ago?

I am not denigrating the stock or company. Just putting it out as is and cutting to the chase.

Why, specifically will UBNT now, when before it was trying the same thing and did not succeed, succeed now? Specifically what is now different? The story is exactly the same. Stock is cheap, enterprise penetration, consumer penetration, cheaper marketing budget, network of users a lot like Linux that enable better tailored products, that are fixed faster, with lower marketing and R&D budgets, et al.

That was the story back then as well. It is the story now. So can you identify why now UBNT will sustainably and materially grow and steal marketshare from the likes of Cisco so that its share price will no longer lag?

Tinker

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Tinker said in response to UBNT breaking into the enterprise market: That is exactly what was said years ago when UBNT was first introduced to me. Analysts and individual investors had this same story. And boooof, they hit ad quarters, then a good quarter or two, another miss. Back and forth and really, exceptnfornswing trading, it was not a good company to invest in…So why now is UBNT products ready to start to dramatically and sustainably grow in consumer and enterprise markets? They certainly did not do so when the move into enterprise markets started about 5 or more years ago?

Actually, look below. Five years ago was 2012. UNBT had very little enterprise revenue ($35M in FY2013). Through 3 quarters of FY2017 they are at almost $300M and they will probably hit $400M.


	Enterprise Revenue in $M				
	Q1	Q2	Q3	Q4	Total
2013	9.9	6.7	7.7	11.1	35.4
2014	35.5	27	27.3	32	121.8
2015	42.8	53.4	41.2	40.5	177.9
2016	48	52.3	71.1	76.7	248.1
2017	84.1	98	113.6		295.7
2018					
					
	Service Provider Revenue in $M				
	Q1	Q2	Q3	Q4	Total
2013	51.6	68.2	75.5	90.1	285.4
2014	94.2	111.4	121	124	450.6
2015	107.3	99.7	106.3	104.8	418.1
2016	103.4	109.6	96.3	109	418.3
2017	120.6	115.6	104.7
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So why now is UBNT products ready to start to dramatically and sustainably grow in consumer and enterprise markets? They certainly did not do so when the move into enterprise markets started about 5 or more years ago?

Certainly a valid question. From the numbers Gaucho posted, you can see the current growth in enterprise. The past quarter was the first quarter in the history of the company where enterprise was greater than Service Provider. The enterprise growth, is well, on fire currently.

This is attributed to better products. The company failed miserably what they are supposed to be so good at - creating products that perform as good or better at a disruptive price point. They just simply didn’t execute on the product front primarily in their UniFi product line, but in others as well.

They appear to be executing quite well save a few minor bumps in the road two quarters ago. In fact, it is likely those minor speed bumps that caused the price to flatline giving investors who believe in the name, simply more time to get in if you believe in the story and believe what the business has shown over the past two quarters will continue.

Let me steal from Saul’s last monthly update to give you a feel for how the company is doing currently.

Ubiquiti is in sixth place, at 7.5% of my portfolio. In February it fell from $64 to $49 in a couple of weeks after announcing results, a drop of over 23%. Why? I’ll let you figure it out. Here were the results they announced:

Their revenues were up 32% .
And their earnings were up 24%
Gross margins fell from 48% to 44% because of one-time reasons that the CEO spelled out clearly.

Their revenue guidance was up 29% to 215 million from 167 million the year before.
EPS guidance was up 20.6% at the mid-point.
And on the basis of these terrible results Ubiquiti lost 23% of its market cap ! to a PE well under 20.

In May they reported March quarter results, beating their guidance midpoints throughout:
Record quarterly revenues of $218 million, up 30%.
Gross Margin of 45.4%
Adj net income up 22% year-over-year
Adj EPS of 78 cents, up 24% from 63 cents

Their new Enterprise line revenues topped cash-cow Service Provider revenues for the first time, and were up 60%, and up 16% sequentially.

I added a tiny amount on the drop in February, and added a bunch more in May when it dropped to $47 after those March quarter earnings. I’m cautious though about jumping in feet first because, after all, they do manufacture internet hardware, they are moving into new markets, and they don’t really have recurring income. Their current price is $47.75. Their PE is 16. Analysts just don’t believe that anyone can continue to be as successful as they are with such an unconventional model.

The market is offering us a gift right now in my humble opinion.

Take care,
A.J.

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The market is offering us a gift right now in my humble opinion.
Maybe. But the question is whether it or some other stock(s) are offering the bigger gifts

Where is the edge in investing based on information discernible to all?

I hope UBNT does well but I am not investing in anything that is not floating higher with an incoming tide.

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https://finance.yahoo.com/chart/UBNT#eyJtdWx0aUNvbG9yTGluZSI…

I don’t know if this interactive chart will work, but you guys can look at your own.

UBNT shares are up more than 100% since January of 2016. So the market did think good things of UBNT as the enterprise product growth became more favorable.

The momentum stopped after the last earnings call, or thereabouts. That does change the thesis, as it is not so much that the shares have not risen based upon increased fundamentals, but it is that UBNT (on some basis, and most here seem to believe there was no real basis but overreaction - i make no comment, as on the surface Saul looks to be correct here that the fundamentals still seem sound - would take a deeper look, including historical issues to decipher otherwise why the market did what it did) UBNT was not left behind by the bull market.

Instead UBNT disappointed the bull market, and has yet to regain its confidence.

So that is a different sort of story.

During the last 5 years, the only profit in UBNT, as I indicated has been swing trading, but from Jan 16 forward, UBNT shares were treated positively by the market (certainly at that point in time the market had a different perception of UBNT than at any point before then).

If I get some bored downtime I will look further. I do understand the company pretty well from a high level basis to begin with, and can see that something good was happening, that heretofore was not happening, until they reported their disappointing quarter again (which is characteristic of the company, and perhaps of the business model).

Tinker

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The problem quarter was the December quarter they reported on Feb 9. You can go back to this board and look at what was written at that time. I just went back and saw where you chimed in as well.

I wrote this as a review.

http://discussion.fool.com/ubnt-thoughts-32595417.aspx
Maybe that is a good start for your research during down time.

AJ

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Of course the time span for “out-performing” is arbitrary. I use 6 months because of the strong bull, but have no evidence that it is the best momentum gauge. A longer time span might be better for a sideways market .
And I don’t use momentum at all in a bear , preferring to wait and see what happens. Holding more than buying, trying to build up cash to take advantage of bargains somewhere not far from the bottom. Because that is the one and only time bargains are abundant.

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I do remember your excellent post. UBNT is likely to continue to trade sideways, as it has been, despite the bull market, but it set for a nice pop, if they come through with next earnings.

UBNT is not something that I am interest in however. I do understand that the basis for its existence, is in the end, to produce as good, if not better quality wi fi products, than the incumbents, and they want to move this into the enterprise, not just in isolated areas and second and third world countries.

And it seems as if they are succeeding at this to some extent. Enterprise sales are very healthy.

This said, I have seen no evidence of a UBNT Tornado disrupting the buying cycle of enterprises or anywhere else. What I have seen is a nice business, slowly penetrating a small portion of the enterprise market, but nothing to indicate a company doing anything necessary to become a $10 billion + company in any sustainable manner. But still a niche seller of product into a very small portion of a gigantic ocean of a market for enterprise communication products.

Nice business, good to have in one’s portfolio, particularly when purchased at opportune times, but not a world beater. Not a best in breed leading company. Not a company that is singular, with large CAP and TAM.

Yes, UBNT has an enormous TAM. $10s and $10s if not hundreds of billions of dollars. But most of that TAM remains unpenetrated, and seemingly out of reach, so I don’t give it an enormous TAM.

Combine a debatable CAP with a TAM that the company has failed to penetrate in any large fashion, and it may be a nice business, but it does not equate to me to the sort of enterprise I want to invest in.

It is Overstock.com vs. Amazon sort of thing.

Yes, if the stock bounces, I may miss out. Then again stocks like SHOP, TTD, VEEV, NVDA, have already popped to much greater extents than UBNT is ever going to.

I say this, keeping in mind, that a certain oven making company (like Hank Aaron) just kept doing it year after year after year to the point that one became an enormous investment return, and the other home run king without use of steroids, he just kept hitting 20, 30, then 40 home runs a year for an awful long time (yes, coming from the Great State of Georgia).

Tinker

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They certainly did not do so when the move into enterprise markets started about 5 or more years ago?

Tinker, What are you talking about? 5 years ago they were selling at $14.25. Now they are at $47.50 even WITH the recent fall in price.

Sure, there are other companies that have risen even more, but lots and lots and lots that haven’t. Whoever told you they might be a good investment wasn’t totally wrong.
Saul

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The Yahoo! chart I pulled up, has changed its data from yesterday to today. So yes, been a very good return in 5 years if you bought at the bottom.

I don’t remember when I first looked at UBNT, it it was 5 years ago, 3 years ago, but it was a few years ago, and the story was the same then as it is now. And the stock was “cheap” then as it is now. And the stock underperformed (except in spurts that would be reversed by periodic missed earnings), as it does now.

UBNT is built for swing traders, and not long-term investments (my opinion, and worth no more than that). If UBNT’s new products are so good (talking the whole product, not just the hardware, but the software, service, installation, integration, customer service, etc) it will show up in large upside surprises as given the costs, it could disrupt the entire industry.

To date, however, UBNT has managed to sell into small niche areas of the enterprise market. Good business, but no indication that enterprises will leave the whole product that is offered them by the likes of Cisco.

I am certainly not leaving Apple because I can get a better and faster PC based on Windows. The Windows product cannot get cheap enough to make me switch, as long as Apple does not get too expensive, and its product quality for the whole product does not decline.

Same issue UBNT is facing. If it solves that problem with customers its sales will take off in Tornadic fashion. To date, however, there is no indication of this. There being no indication of the company becoming sustainably great company, it is not a company I am interested in investing in.

That end result is “visionary” investing and I lose every time I try it. Doesn’t mean it won’t work out, and in fact doesn’t even need to work out for nice stock returns. Just not my investing method.

Tinker

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Hi Tinker,

Thanks for starting this thread. It has brought quite a lot of UBNT bulls out who have some pretty good analyses to show how well the company is doing.

I’ll try to respond to one of your points:

The momentum stopped after the last earnings call, or thereabouts. That does change the thesis, as it is not so much that the shares have not risen based upon increased fundamentals, but it is that UBNT on some basis, and most here seem to believe there was no real basis but overreaction…

You may have made a mistake in your interpretation as to what most here believe is the cause of the reversal of momentum in the stock.

I (and probably quite a few others as well) think that the market is short-term focused and doesn’t trust Pera. Ubiquiti has had some significant problems over the past few years, including Chinese knock-offs causing a dip in sales and a financial scam causing them to lose over $40 million (some of which they got back).

So when Pera gets on conference calls and talks about performance, the market hears Pera talking about how great the business is doing, expecting it to keep going up in a straight line and sell if this doesn’t happen. But the market doesn’t listen to the parts where Pera talks about looking at the stock price over three years, not quarterly, and that he’s setting up the company to perform long-term. This quarter, Pera told us about investing in a lot of inventory and lower introductory prices to establish the brand and dominate new markets.

Pera got a lot of questions about inventory on the last earnings call (https://seekingalpha.com/article/4069514-ubiquiti-networks-u…), which he answered quite well. But the market probably focused on the fact that the increases in revenues didn’t translate to better improvements in earnings.


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	

AEarn	Mar	Jun	Sep	Dec
2011	13.2	18.3	21.7	24.9
2012	28.1	27.9	13.6	18.3
2013	21.1	29.5	41.2	42.6
2014	45.2	50.2	43.4	47.1
2015	42.0	44.1	45.5	49.7
2016	53.0	58.2	65.5	60.1
2017	64.6

Revenues were up about 30% YoY. But adjusted earnings went up only 22%. The fact that there were additional costs associated to pursuing new opportunities could have been rejected by the market. Perhaps they look at the increase in inventories and think that the shareholders will be left holding the bag when it doesn’t sell, especially given the company’s past screw-ups.

Pera owns about 2/3 of the company and has a long-term vision that I believe will be successful, which is why I own shares and am buying more at today’s prices.

With revenues going up really well, a disruptive business model, a 1 year peg of about 0.8, over $500 million in cash on the balance sheet and a knack for buying back shares at low prices, the downside is limited if they don’t kill it. If they do, the upside is significant.

DJ

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Thanks DJ,

Good perspective to consider.

Tinker

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I’m certainly not trying to change anyone’s mind here.

DJ’s post was insightful from a long term perspective over the company’s history which makes me believe he’s held for as long as I have or longer. I want to point out one final thought here which I may have understated.

I mentioned it in my post in February after the stock took a beating. DJ summed it up succinctly, so I’ll steal from him.

the downside is limited if they don’t kill it. If they do, the upside is significant.

There’s a lot of value in this statement especially during a big bull run. It doesn’t hurt to have a few companies that aren’t so richly valued IF and WHEN things turn for the worse.

The risk-reward scenario sets up well and while the price isn’t currently increasing with the rest of the market, it can make up that quickly. Likewise, due to it’s valuation, it may not fall as fast as others.

Take care,
A.J.
Not making any predictions on what the market will do and when…

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