UBNT - Ubiquiti Networks

[jouni1]

came across this, and knowing there's quite a bit of tech-interested people here thought i'd post and see what you have to say.

 

the way i understood they mainly make network equipment, wired and wireless systems, which are supposedly better and 3-4x cheaper than cisco for example.

 

posted some impressive numbers last Q:

• Revenues of $129.7 million, up 111% year-over-year and an increase of 28% from the prior quarter, marking the fourth consecutive quarter of sequential double-digit revenue growth.
  
• GAAP net income was $40.5 million, up 208% year-over-year and an increase of 41% sequentially.
  
• Non-GAAP operating profitability of $47.1 million, up 186% year-over-year and an increase of 37% sequentially.
  
• GAAP Diluted EPS of $0.45, up 221% year-over-year and non-GAAP diluted EPS of $0.46.
  
• Stock price of $46 at time of writing
  

 

they're quite richly valued but if they can keep going at a pace even near to this, it could be a solid investment.

 

what do you think, is it a truly disruptive company or will they get crushed by the behemoths in a few quarters?

 

sorry for the low level of analysis but as i said i wanted to see if someone understood more about this than me.

[SpecOps]

Resurrecting this thread as I just bought some shares in UBNT.

 

I think they are very well placed in this industry and customers speak very highly of the company and its products. Pretty cheaply valued considering growth. Lots of worrys about increased competition in the future but I'm not convinced UBNT will be easily displaced as the market leader. My main concern is more over what management does next, though they have proven competent so far.

 

I wrote up a full thesis on my blog https://investingsidekick.com/ubiquiti-ubnt-investment-thesis/

 

[compoundinglife]

Apolgies in advance, this is kind of a rambly post. Also a disclaimer, I have not been very active in this space for quite a while so my perspective might be dated.

 

I used to own a company that built a linux based ruggedized outdoor wireless routers for WISPs. The UBNT product line eventually displaced our product which was a niche low volume product and we switched to reselling UBNT products and eventually winded down because the margins in reselling their gear were not enough to make it worth our while at the volume we were doing.

 

I met with management and their engineers to work on a couple of large projects we were doing in non-public spectrums. This was back in 2006 before the IPO.

 

The company was hyper efficient. I was very impressed with how much product they produced with such few people and how quickly they were able to get products to market. It was very clear that they were extremely cost conscious and the employees were very dedicated and the engineers were very sharp. I am no longer in that line of business, so I have not dealt with them since 2008.

 

As for the products, they were really good and feature rich for the price point. However their niche was really wireless ISPs and WISPs loved the simplicity of their stuff and also the super cheap price point. Is the gear as good as cisco? It is not IMO. I have run into quality issues with their gear and know some larger WISPs that have had a lot of quality issues with some of their gear. Issues that require multiple tower climbs to keep replacing stuff after they have said the issue was fixed a new hardware rev. But really the price point you just deal with it because its the cheapest option out there. Quality issues could have just been growing pains or a problem with a specific SKU. I have had mostly good experiences with their products.

 

There are also two primary different use cases for wifi gear. The WISP use case is that you have some UBNT gear on the tower and then a UBNT device at someone’s house with an ethernet cable out the other end. So you are mostly doing UBNT to UBNT which they have probably tested very well. It also allows you to use whatever proprietary extensions they have for better performance. If I were building a WISP I would still consider UBNT gear because it is just so cheap and featurefull for what you get. But I would likely only use it for connecting end users and try to stick with something like DragonWave ( http://www.dragonwaveinc.com/ ) for backhaul links or links that just can’t go down. But alot of WISPs out there use UBNT and are very happy with it. They have a great edge in the WISP market.

 

There is also the enterprise/campus use case. When you buy wifi gear from gear from Cisco or Aruba what you are getting is something that has had all the kinks worked out through experience. Wifi is very tricky because there are so many different client chipsets, drivers, variations on the authentication protocols… and it is really easy to run into issues because not everyone adheres exactly to specs. It has gotten better over the years but if I were to do a production wifi network for end users (non wisp model) I would use cisco or aruba. These companies have done huge rollouts at Microsoft campus, Apple campus etc… They have worked out all the issues with all the different types of client side hardware and drivers our there and they have handled alot of the mobility issues.

 

For example, I have worked on deploying WiFi that *had* to work for events with over 5K devices in a single conference center, used Cisco. Would not use UBNT for that.

 

I realize that this probably doesn’t help with regards to buying or selling the stock. I looked at UBNT when it IPOed and threw it in the too hard pile, just really hard for me to get a good sense of what will happen to them.

 

[mvalue]

Thanks so much for posting this compoundinglife.

 

It seemed to me part of the promise and peril of ubnt is selling that same WISP hardware into frontier markets - any thoughts on whether that is how some of those markets might be built out or reasons why they might not?

 

Obviously not asking for opining on the future, just whether these hardware offerings make sense for bootstrap ISPs around the globe w/less wire infrastructure or whether there are other options that might leapfrog that approach.

 

[SpecOps]

Thanks for the info compoundinglife, always very useful to hear from someone very familiar with the industry.

[compoundinglife]

Thanks so much for posting this compoundinglife.

 

It seemed to me part of the promise and peril of ubnt is selling that same WISP hardware into frontier markets - any thoughts on whether that is how some of those markets might be built out or reasons why they might not?

 

Obviously not asking for opining on the future, just whether these hardware offerings make sense for bootstrap ISPs around the globe w/less wire infrastructure or whether there are other options that might leapfrog that approach.

 

I think UBNT's products make alot of sense in the frontier market. The price points allow for local entrepenuers or governments to bootstrap a WISP for a low cost and incrementally expand their networks. I have no idea however how big the demand is in the developing world.   

[Dustin T]

I just opened a position. The price, profit margin, and everything I've read about the CEO convinces me the upside is worth the risks.

[SpecOps]

Another look at UBNT by blogger Jnvestor, interesting analysis

 

http://www.jnvestor.com/ubnt/

[Dustin T]

UBNT just dropped 16% because it missed earnings by a nickel (.72 vs .77 per share expected). Great buying opportunity, earnings and revenue are up actually by 20% year of over year so I'm guessing it's being punished for not being up 21%.

 

This company is unloved by wall street for a variety of reasons, it doesn't have a CFO (how dare they) doesn't have a traditional sales force, and the CEO owns over 50%. It's a jockey stock the same way Apple was under Jobs. I'm not claiming this is the next apple, just that it's ran by a brilliant young CEO with an excellent track record.

 

It's been good to me, if you read up on Robert Pera and his company, I believe it could be good to you too.

 

http://seekingalpha.com/article/4030431-ubiquiti-primer-survival-land-carnivores-dinosaurs

 

http://seekingalpha.com/article/4044624-ubiquiti-networks-ubnt-q2-2017-results-earnings-call-transcript

[rkbabang]

I've been watching UBNT for a while now.  I love the company's products even for the home.  Last year I was so sick of poor wifi in my house that I finally bit the bullet and got rid of my residential wireless router in my house and setup an Ubiquity wireless system.  I went with a Ubiquity EdgeRouter X to a CISCO SB200-26 switch to two Ubiquity Unifi AC-PRO  access points located each at one end of my house.  While I was running the cat6 for the access points I ended up running a bunch more to wire in all my permanent equipment (TVs, computers, video games consoles, etc).  Before doing this I tried an ASUS router, a Netgear router, and a even both together setting one as an extension.  They were unreliable (they kept crashing and needing to be re-booted every week or so), there were dead spots all over my house, I couldn't connect in my yard at all.  After installing the Ubiquity equipment I have wifi everywhere in my house, garage, driveway, yard, and even down the street a little.  They are solid, after setting it up about a year ago and getting it working they never go down or need to be re-booted, they never drop signals even for a second (that I've noticed anyway).  If anyone hates their home wifi I'd recommend going this route.  I know most homeowners never will, but these are excellent, cheap, easy to setup and maintain systems that even a small business should have no problem affording or using.  From the research I've done most of their competitors charge double or more for a similar setup.

 

I'm thinking about buying UBNT today.

 

[awindenberger]

I loved the UBNT story 12-15 months ago and am still pissed at myself for never buying in when it was under $30. Since then I've been waiting for a large pullback that never came. Now it finally happened, but I don't have anything else I want to sell, so hopefully it will stay down for a few months while some other picks play out.

[gjangal]

RJP has been a good ceo so far. Although he owns the majority of the stock he will play fair with minority shareholders. He used to have a blog where he has written his thoughts about running a company. Not sure if it's still online

 

Very good story so far, to me it looks like he has a roadmap and is following through with it by launching products one after another. Amplifi , the new product has great reviews on Amazon. The enterprise side seems to be growing.

 

The short interest on this one is crazy. north of 7 mn out of a total free float of 25mn. The market expects gross margins to contract in the future and RJP is adamant about maintaining it at 45%. I own a bit for sometime but it has been a very bumpy ride and looks like it's going to be one in the future.

[valcont]

Used to own the stock and loved Pera's CC's with analysts. He would be explaining the 2 year roadmap and their response "umm what's the guidance for the next qtr.". Pera is a great guy, he used to have a blog and did a video on Tesla. I thought he was spending way too much time on shooting hoops.

 

Their distributorship model is pretty interesting. Bulk of their revenue is lumpy and comes from countries like Russia, Iran ,Iraq and the dealings are pretty opaque.

[gjangal]

results out today. will be a billion dollar revenue company next year .

 

http://files.shareholder.com/downloads/AMDA-JI74R/4416779331x0x952276/B7971B9A-FD9F-4FFF-96CA-15F5484FDE9F/UBNT_4QFY17_Earnings_Press_Release_FINAL_08_03_17.pdf

[Foreign Tuffett]

results out today. will be a billion dollar revenue company next year .

 

http://files.shareholder.com/downloads/AMDA-JI74R/4416779331x0x952276/B7971B9A-FD9F-4FFF-96CA-15F5484FDE9F/UBNT_4QFY17_Earnings_Press_Release_FINAL_08_03_17.pdf

 

A solid quarter that helped allay some much of the market's skepticism about their gross margin deterioration and inventory build.

 

There are several good articles on this name on Seeking Alpha for those interested.

[gjangal]

Yeah. to me it's very surprising that the market has 8-9m shares short in a company which has a 30m share float and the ceo owns 50% of the company. The company dominates the WISp niche. It's taking market share from cisco, aruba and ruckus in the Wireless LAN space.

 

It was bootstrapped by a guy from 0 to 1b in revenue with little or no capital and just an idea. He is one of the most under rated ceos out there.

[Foreign Tuffett]

Yeah. to me it's very surprising that the market has 8-9m shares short in a company which has a 30m share float and the ceo owns 50% of the company. The company dominates the WISp niche. It's taking market share from cisco, aruba and ruckus in the Wireless LAN space.

 

It was bootstrapped by a guy from 0 to 1b in revenue with little or no capital and just an idea. He is one of the most under rated ceos out there.

 

Pera actually owns  ~71% of the company! Since he doesn't take a salary he is very aligned with outside shareholders. I agree that he's a great CEO; sell side analysts don't give him much credit because he (1) semi-openly disdains them (see his treatment of the Bloomberg analyst on the Q1 2017 call) and (2) isn't a great public speaker and doesn't come off as being as 'polished' as the typical CEO of a company UBNT's size.

 

Another thing to keep in mind is that Robert Pera's father Edmund Pera, CEO of Armanino Foods, is also a very good, outside shareholder-friendly CEO.

 

 

 

 

[pau_]

I own this. Andrew Left is calling it a "complete fraud" https://www.youtube.com/watch?v=hVnnGj_J7O8

 

Edit: I was expecting a smoking gun with that kind of allegation. He's basically saying their numbers are "too good" when compared to competitors, and that there aren't really enthusiasts in the "ubiquiti community", and that Robert Pera "doesn't high five" Cramer.

[pau_]

I would actually skip the video and just read the paper if you're interested in his arguments: www.citronresearch.com/citron-exposes-ubiquiti-networks/

[rkbabang]

Used to own the stock and loved Pera's CC's with analysts. He would be explaining the 2 year roadmap and their response "umm what's the guidance for the next qtr.". Pera is a great guy, he used to have a blog and did a video on Tesla. I thought he was spending way too much time on shooting hoops.

 

Their distributorship model is pretty interesting. Bulk of their revenue is lumpy and comes from countries like Russia, Iran ,Iraq and the dealings are pretty opaque.

 

His blog is here: http://www.rjpblog.com/

 

As far as the Citron "research", using the word "misunderstood" is apparently a red flag?  As is being driven by making money? Wow that is some high quality analysis.

 

In my opinion the Ubiquiti Community is great.  Every question I had setting up my system I found the answers to easily with a quick search of the discussion boards.  If as a homeowner with no experience setting up a commercial network I had bought a Ruckus or Cisco setup would I have been able to have all of my questions answered easily online without the need to talk to company support (which is usually awful regardless of the company).  Not only that, but I would have paid a hell of a lot more for the products.  In reality I never would have purchased them to begin with.  Not only are Ubiquiti's prices the lowest by far, but the community makes using their products easy even for the non-professional.

 

[gjangal]

It's a decent sized position for me. There is a high probability that he is just manipulating the price for his own benefit. Based on price action i think he has shorted it from the top and probably will cover in this down move

 

It's a wait and watch for me. I don't think there is fraud on a large scale. Small discrepancies in financials are a given for any public company because if the complexities in reporting

 

[Dustin T]

Unconcerned, none of the "evidence" seemed like anything more than silly conspiracy theory stuff.

 

Robert Pera's actions speak louder, share buybacks, low salary, all of this reflects very well on his long term belief in this companies future.

[valcont]

Just read the report. The only thing that bothers me is why haven't they hired a CFO yet? Its been couple years already and the last replacement was a complete disaster who ended up costing them $46m.

 

UBNT has always been attacked by the shorts for the usual reasons. Opaque distributorship, dealings in shady countries, Distracted CEO.. As for the margins, UBNT has lower GMs of ~45% compared to CSCO's ~63% so makes sense that having a community to support and sale the equipment should lower the opex. Not aware of their recent offerings but their Access router network were a great system compare to the CSCO and were the only option in Middle Eastern/Russian countries. That should explain a higher margin in those countries and more cash outside US.

 

I would not discard the report altogether. I didn't understand parts of their business and the lumpiness of the revenue so I sold.

[eclecticvalue]

Valcont, He tweeted about it today. Apparently CFO's are only used to appease Wallstreet and serve themselves. He must salty after the last CFO. He likes his CAO.

[gjangal]

Valcont, He tweeted about it today. Apparently CFO's are only used to appease Wallstreet and serve themselves. He must salty after the last CFO. He likes his CAO.

 

I couldn't believe he said that, not a very mature comment by a CEO