Shares of Novatel Wireless (Nasdaq: NVTL ) took a 27% hit on Friday, after the mobile broadband gadget maker posted disappointing guidance for the current quarter.
Novatel had been rolling until then. Its revolutionary MiFi -- the pocket-sized hot spot that can provide online connectivity for multiple products at the same time -- is arguably one of this year's coolest tech toys.
Sprint Nextel (NYSE: S ) and Verizon (NYSE: VZ ) have been marketing the MiFi aggressively, because it gives consumers more bang for their mobile broadband buck than USB modems sold by Novatel and Sierra Wireless (Nasdaq: SWIR ) , which are limited to a single user and require a laptop to get going.
It's not just a stateside phenomenon. Wireless carriers in Singapore, Mexico, and Canada have also teamed up with Novatel to offer the MiFi.
If this sounds like a recipe for growth, one sentence in the company's quarterly report was enough to crash the party.
"Currently, we expect fourth quarter MiFi sales to be similar to third quarter levels as improving sell through catches up to initial stocking orders," CEO Peter Leparulo notes.
Flat sales during the holiday quarter? Carriers ordering more mobile hot spots than they were able to sell? That's not pretty.
Novatel's third quarter itself was great. Revenue climbed 20% to $94.3 million. A profit of $0.20 a share was double what analysts were expecting. However, the company's fourth-quarter projections of $0.04 to $0.12 a share in earnings on $85 million to $95 million in revenue imply a drop on the bottom line compared with the third quarter, and the high probability of a top-line decline.
The pros don't like it, and they're paid to publicly look out even further than Novatel. A week ago, Wall Street figured that Novatel would earn $0.39 a share next year. Now that has been revised to net income of $0.31 a share.
The good news for Novatel is that its balance sheet is flush with $5.55 a share in cash and marketable securities. Back that out, and Novatel is trading at an earnings multiple of around 10 for next year. A few more foreign MiFi deals would help. It also wouldn't hurt if Sprint and Verizon Wireless become more aggressive with their mobile hot spot pricing plans to reach a larger audience.
As a mobile broadband customer for four years -- and a Novatel shareholder for two months -- I'm not losing faith. I know that the one thing keeping me from a MiFi is that I have another five months on my two-year USB mobile broadband contract. Others are in my boat.
You see this all of the time with Apple (Nasdaq: AAPL ) , Research In Motion (Nasdaq: RIMM ) , and Palm (Nasdaq: PALM ) . They roll out a sleek new smartphone, but prospective owners have to bide their time as they work their way through their two-year wireless commitments. The sales eventually trickle in, and I can't imagine folks on old-school USB modems or dinosaur-school PCMCIA broadband cards not upgrading to a MiFi when their contracts come up.
This is a great time to warm up to Novatel. Between the cash mattress and misunderstood weekend sell-off, it's positioned well to be a hot-spot hot spot.
Do you have a mobile broadband subscription? What are you using, and what do you think about the MiFi? Share your opinions in the comments box below.
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