UBNT Results - getting hit AH

Misses on EPS, beats on revs…


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Thanks Ant.

Your take on the CC?

All the analysts seemed very nice to Pera. No harsh questions. Overall to me it seemed good. Short-term EPS was sacrificed because Pera is really trying to grow grow grow the company! And he’s doing it! They’ve got 600million in cash sitting there.

Pera tries to explain the EPS hit was due to a number of things to impact OpEx and is NOT indicative of long-term EPS and margins. He’s really driving towards getting $1 billion in revenue and is sacrificing some fundamentals in order to get there as fast as possible.
He says they misexcuted on the AmpliFi launch, they had to redesign the product, and then airshipped a bunch of stock just to get it out there in order to obtain ‘mindshare’ (get UBNT’s products out there in people’s minds).
One analyst asked him by how much did these air shipments affect OpEx but Pera didn’t know off-hand and asked the analyst to do a follow-up call. We’re hoping it’s significant and might be worth checking to see if the analyst has found the answer. If so, then probably worth buying if these AH prices stay down.

All that said, Pera seems very confident he’s about to put out not just a value product, but the best. I think his business model is once more and more people are aware and use his products (which let’s face it, awareness of UBNT is probably miniscule vs cisco and other brands), they won’t leave. But it’s just routers, hardware…are they really sticky?

For a company to move away from PAYC to use another software is a huge ballache.
But to switch away from UBNT? Is it that difficult?

Spending $50 million on R&D to obtain a revenue of $1billion is nothing to sniff at. Been investing in UBNT because of this model. Allows them to put out value products. But now Pera believes they’ve got the best, not just the best value.


UBNT is moving up stream toward higher ASP markets/customers. I may have more to write later, but the following comment is likely the most important comments of the conference call. The analyst was quite excited about it too…

I believe probably over this next year, UAP-AC-HD should be the highest revenue product, not only in UniFi but in the whole company.

John A. Lucia - JMP Securities LLC

Wow. Okay. When did you introduce it? That was recent, right?

Robert J. Pera - Ubiquiti Networks, Inc.

Yes. Officially, we started shipping probably late last month, late January.

Pretty impressive to release a product in late January and expect it to be the highest volume driver of the business this calendar year. We shall see.

And they have claimed to solve the “backwards compatibility” issue. I put this in quotes as I have no clue what it really means. I only know they have been trying to solve it since I started following the company several years ago.

May have more to follow:



A brief excerpt from a Morningside multipage evaluation:

Ubiquiti growing pains on display but we are optimistic about new products; Raising fair value estimate to $66

Ubiquiti’s results were largely in line with our expectations, as they posted stronger-than-expected top line growth, which was offset by gross margin compression related to AmpliFi and airMAXac product launches.

Ubiquiti is busy scaling up its business as more products are expected to hit the market later this year. We like the unorthodox business model of the company, which has been working fairly well with few exceptions. However, we still fear a lack of customer stickiness in the company’s business, which precludes us from assigning them an economic moat. At the same time, we are encouraged by the growth of UniFi family of products and we are upgrading our revenue expectations.

We are also increasing our fair value estimate by $5 to $66, thanks to slew of new products and growth in high-margin segments of enterprise business. While shares are pulling back in afterhours to about $60, we view Ubiquiti as modestly undervalued, but still recommend investors to wait for a larger margin of safety before investing.


Morningside’s review seems quite balanced. In particular, the statement below hits at the crux of the matter.

However, we still fear a lack of customer stickiness in the company’s business, which precludes us from assigning them an economic moat

In fact, Pera talked about stickiness within their service provider business, and I trust his points w.r.t. that business. I do wonder how sticky their solutions are/will be in enterprise and within the consumer’s home. I tend to believe they will do well, but am certainly not certain of it.

Here’s another place where Morningside and I agree. I’ve been pounding the table on this for some time.

We like the unorthodox business model of the company, which has been working fairly well with few exceptions.

Ubiquti can afford to innovate and make some mistakes.

Take care,


Just curious… does Morningside = Morningstar or is there another financial services company with similar name that also cares a lot about moats?

Just curious… does Morningside = Morningstar

Sorry, MorningStar. I’d like to blame it on my spell corrector, but it certainly could have been me.

Thanks Saul.

I don’t have access to Morningstar Premium, but I do have access to some of their analyst reports through the StockInvestor newsletter. I find Morningstar to be a little stingy in assigning moats to upstart companies and a little to slow to notice eroding moats with more stalwart companies. On balance though the moat concept is a good one, and I’d rather they err on the stingy side.

I think Ubiquiti has a bit of a moat in the form of cost advantages and network effects to use Morningstar’s moat terminology. They are smaller and more nimble than the bigger players and can do more with less in terms of R&D. They are also led by a charismatic leader with a lot of skin in the game and have an evangelical user community.


and have an evangelical user community.

I think the evangelical user community who love their products is a moat in itself. It’s not just low price. But that’s just my opinion. And it may be a moat that can get eroded.


Just curious… does Morningside = Morningstar

I should have known better than to perpetuate the very minor mistake. However, I just realized that I have a customer named Morningside Capital, which is a very odd name for a customer of mine. The common customer name is something like “Saul’s Excavating.”

So something made sense to me when I wrote Morningside.

Recognizing the above offers zero value, I promise to write something valuable tomorrow on UBNT. I hope to summarize the negatives weighing on the stock currently and my view as to why this is a buying opportunity.

Take care,

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or is there another financial services company with similar name

Actually yes there is - it is a very successful VC/PE investment firm in Hong Kong but that’s not what Saul meant.


Looks like revenues were up, margins were down, and U.S. And enterprise were booming. Apple’s gross margins are in the 30%. The issue with UBNT I garner is that due to their more efficient sales process they should enjoy higher margins and better cash generating capabilities, which this quarter did not evidence. Management guides to this being an aberrational quarter margin wise.

I do not know this company in details, but seems like an overreaction unless the company ran up substantially into earnings.