After Q4 Results, What Are Ubiquiti's Long Term Prospects?

Ubiquiti Networks grew fourth quarter sales 54% and net income 71%, in addition to diminishing concerns about inventory management that arose in the third quarter.

Sep 4, 2014 at 1:17PM

So much for the inventory concerns raised in May following Ubiquiti Networks' (NASDAQ:UBNT) third quarter results. The company -- a provider of network communication platforms -- reported fourth quarter results on Thursday, August 7, demonstrating impressive year-over-year growth, but more importantly putting inventory concerns to rest. 

Financial highlights of Ubiquiti's fourth quarter
Ubiquiti saw total sales for the quarter increase 54% year-over-year to $156 million, with GAAP net income growing 71% to $49.4 million ($0.55 per share). The company continues to prioritize research and development, as evidenced by a 71% year-over-year increase in R&D expenses for the quarter to $10.2 million.

Ubiquiti saw especially strong performance in its Enterprise Technology segment, which grew sales 188.3% year-over-year to $32 million (20.5% of overall sales). Inventories -- a prime concern Wall Street had after Ubiquiti reported third quarter results this spring -- fell quarter-over-quarter to $46.4 million from $66 million in the third quarter. Ubiquiti's inventory had quadrupled in the two quarters leading up to the third quarter this spring, causing concern among numerous Wall Street analysts who worried Ubiquiti had excess inventory and execution issues. These fourth quarter results, however, put investors minds at ease.  

On top of this strong sales growth, operating cash flow increased 20.8% year-over-year to $55.8 million. Ubiquiti now has $347.1 million in cash with $72.3 million in long-term debt, making for a net cash position of $274.8 million. 

An expanding product line 
Ubiquiti continues to branch out its product line of network communication platforms. During the fourth quarter, Ubiquiti launched: 

  • EdgeSwitch, which is "designed to offer superior performance and capability for a fraction of the cost of a traditional enterprise switch." (Switches are tools to interconnect parts of a network.)
  • UniFi Video, a new line of video surveillance camera control software, accompanied by a new generation of cameras. 
  • UniFi VoIP, a VoIP enterprise smart phone technology particularly geared toward businesses, schools, hotels, and other enterprises. 

"[W]e're living in a time where if you have a disruptive product that's really great, people are going to find it. And I think we've proven that," says Ubiquiti founder and CEO Robert Pera. "We didn't have any salespeople or marketing people or business development people around UniFi." Ubiquiti continues to utilize its growing community of fans to sell and market its products -- a special advantage enjoyed by very few companies. 

As Ubiquiti branches out its UniFi network -- which is specifically geared toward enterprise customers -- the company is helping ensure that these enterprises will only need one vendor (Ubiquiti) for their network needs. Speaking of UniFi and Ubiquiti's focus on enterprises, Pera explained the significance of these services and Ubiquiti's potential: 

"[I]t completes all their IT infrastructure needs, and they can control all of these IP boxes from one software control point, and they could also control multiple sites from the same control point. And we're doing this all at disruptive pricing fractions of the cost of existing solutions without any support or licensing fees. So I think we're really democratizing end-to-end technology for these -- for our enterprise side. And so it's exciting. I think we're just at the beginning of where UniFi is headed." 

Perhaps best of all, however, is how successful these product launches have been. The primary drivers of operating cash flow growth in the quarter were improvements in customer lead times and and "a reduction in inventory related to new products launched and sold at scale." In other words, these new products are selling strongly and should continue to drive growth in the quarters ahead. 

"We continue to ramp our R&D resources in an effort to accelerate the next phase of our long-term vision of democratizing end to end communications technology infrastructure for the unconnected," says Pera. These R&D efforts paid off this quarter with successful launches of several new products, helping push Ubiquiti's enterprise segment to make up more than a fifth of total sales for the quarter. 

"Several new product launches are driving revenue growth and we continue to make the strategic investments that we believe will help us not only expand our addressable market," says CFO Craig Foster, "but also preserve our company's vision."

Foolish bottom line 
In the upcoming first quarter of the 2015 fiscal year, management is projecting Ubiquiti to grow revenue year-over-year by approximately 20% to 24%. Diluted earnings per share in the upcoming quarter are projected to grow between roughly 13% and 18%. While these numbers wouldn't represent the breakneck growth we have grown accustomed to in Ubiquiti's 2014 fiscal year, it is important to remember that Ubiquiti continues to invest in product development and expansion. These efforts should drive growth for the long-term, exactly the kind of growth we like to see as patient investors. 

Founder and CEO Robert Pera -- who is just 36 years old and spent two years with Apple before founding Ubiquiti -- continues to hold 65% of all shares outstanding. Pera has a direct stake in growing this disruptive business for the long haul. Even with shares up more than 15% following this quarter's results, Ubiquti is trading at a trailing P/E ratio around 23. That strikes me as a very reasonable price for such an innovative business flush with cash, a determined (and invested) leader, and a tremendous market opportunity. 

David Kretzmann owns shares of Ubiquiti Networks. You can follow David on Twitter: @David_KretzmannThe Motley Fool recommends Ubiquiti Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers