UBNT

UBNT’s stock price rising over the last few months has definitely been helped by short covering. As of 1/12/18, shares short is at 7.9M, which is down from 11M on 10/13. See link here: http://www.nasdaq.com/symbol/ubnt/short-interest.

That means that shorts have bought (covered) over 3 millions shares over the last 3 months. Combine that with all the shares the company has been buying back and there has definitely been a drawn out squeeze which has helped the share price rise over 60% since the short attack.

It will be interesting to see how many shares Pera has bought back over the last quarter. We should find out when they report earnings on 2/8. They recently amended their loan agreement (1/17/18), which allows them to borrow more funds to buy back shares. That may mean they have been buying shares even at higher prices than the bargain prices that Citron helped create. See https://seekingalpha.com/filing/3840071

I am curious to hear Pera’s take on bringing back the foreign cash ($597M as of 9/30/17). The new tax law would allow UBNT to bring it back after paying a 15.5% tax. That would be about $503M after taxes. However, updating the loan agreement recently makes me think that Pera is not in a rush to bring the cash back.

It would be good to better understand the impact of the new tax law. UBNT’s effective tax rate is pretty low at around 13% with a lot of their taxes coming from their foreign sales, so there may not be much of a benefit.

With UBNT hitting new highs and now over $80, the stock is not the screaming bargain it was back in September. UBNT was my largest position back then, but I have slowly sold off some of my position. UBNT is still a big position for me though at about 14% of my stock/options portfolio.

In terms of a business update, Grant Beaty who I follow on Seeking Alpha, had a good recent update on product saless which I’ll post below:

ShopBLT has continued to decline, but much more slowly than it had; it’s appears to have bottomed. Streakwave is definitely doing a lot more business than they did in Q1. I don’t have good data from European sales.
In terms of product mix performance, it’s about what you’d expect from reading the forums and other WISP communities.
AirMax AC Gen 2 continues to grow, as does AC Gen 1 to a lesser extent. AirMax M is on the decline. The AC Gen 2 horns are starting to sell too.
The AirCube AC looks to be a minor hit and is selling out of stock. Unsurprisingly, the AirCube ISP isn’t doing nearly as well. I concur with Robert when he said these products could do $10M+ a year. More important than their sales is that they increase the attractiveness of the UBNT WISP ecosystem.
The UAP-AC-SHD appears to be doing fairly well. It only sells maybe 15% of the quantity of the HD, but it also only became available in Sept.
uFiber sales are tiny, but increasing. I don’t expect they’ll do much until Q4, if the new lower-cost hardware (now on the beta store) is a hit.
It’s hard to say much about the sales of established products (like the UAP-ACs) from my data, because we’re clearly seeing distributor market shares shift. However we did see a shortage of many staple UniFi products (UC-CK, UAP-AC-PRO, etc.) across the world in Oct. Prices on Amazon went up (this can be checked on camelcamelcamel.com; see below) and they were out of stock at many distributors. Econ 101 tells us to never reason from a quantity (or price) change, but when I see bundled but mechanically differing products sell out like this, I think it’s more likely due to an increase in demand than a decrease in supply.
Onto Amazon, which sells a lot of UniFi gear… Remember that Amazon only reports sales ranks, so a product staying in the same rank is a good sign due to the growth in wireless and Amazon in general (especially their B2B marketplace).
The UC-CK’s (Cloud Key) rank in the U.S. peaked Oct 25th, shortly before camelcamelcamel.com stopped tracking it. In other countries ranks peaked in Oct as well, except Germany (July) and Italy (two weeks ago). Canada, France and Germany sales ranks also stopped getting tracked in Oct; I’m not sure why.
The USG has performed similarly. Its sales rank peaked in Oct, Nov, and Dec across all markets. In many markets camelcamelcamel.com tracking stopped in Oct, just like the UC-CK.
You could look at individual WAP and switch sales on Amazon, but I’m not sure they’d tell you much as they tend to cannibalize each other. I’m sure the SHD ate into some HD sales, which ate into some PRO sales, etc. I look at the UC-CK and USG because they’re staple parts of most UniFi deployments.
Sales of consumer gear on Amazon remain weak. AmpliFi does seem to be catching on more in Germany. FrontRow remains a mistake.
In summary, there’s good reason to believe Q2 will be better than Q1. I can’t point to any bit of data which strongly suggests otherwise. The dollar continues to weaken, and global economic growth (especially in emerging markets) continues to increase the demand for networking equipment.
This said, we obviously haven’t had any runaway hits this quarter. The first LTU radio, the AF-5X-HD, is only now shipping to distributors. PtMP LTU is probably another quarter out. The potential of uFiber remains unfulfilled. It doesn’t appear that UniFi has made significant inroads into the enterprise.
My short-term projection is that shorts are screwed, and baring some major increase in expenses (like we had last year), only going to get more screwed in Feb. As the float remains heavily shorted with ~17% borrow rates, I can’t help but wonder when our “big short” will finally decide to throw in the towel. I would like to in long when that happens.
If we have the same non-GAAP net income we did in Q1 ($74.9M) with only 77.8M shares outstanding, we get an EPS of 0.96.
I worry more about the long-term. There’s a lot of hype coming out of LTE and 5G which sounds like it could seriously threaten WISPs. Unfortunately I lack the technical knowledge to say if this hype has much to it. LTU gear will surely be much cheaper, but it’s possible more expensive LTE and 5G solutions could scale better and eat up a lot of market share in developed countries.

https://seekingalpha.com/article/4124178-it-sounds-like-shor… (in the comments section on 1/18 at 6:04pm if this does not link directly to the comment)

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