Ubiquiti Networks (NASDAQ:UBNT) released a 55-page presentation [opens in PDF] for the investor and analyst community on Feb. 21. Despite being a public company since October 2011, Ubiquiti has never released a presentation like this, nor does it do much in the way of promoting itself at all. This has been consistent with the company's "outsider" mentality and its lack of a sales force. After all, if the company is built on letting the price-performance of its products speak for itself, why not let its financial results speak for it as well?
After reporting a mixed quarter earlier this month (beating revenue estimates but missing on margins), the stock took a severe 20% plunge, despite revenue being up 32% and earnings up 23% year-over-year. As the company has grown up, management seems to have come to the conclusion that investors need a little more hand-holding. Here are the main takeaways from the recent presentation.
1. It's a "different kind of networking technology company"
Ubiquiti says on slide 1 of its presentation that it is "a different kind of networking technology company" and it uses words like "disruptive," and "unique" in the presentation. The company points to several metrics that set it apart from industry peers. One metric that sticks out is sales per employee, which comes in at a hefty $1.4 million, compared with the industry average of merely $0.5 million per employee, according to Ubiquiti on a slide titled "financial profile of a disruptive player." This allows the company to have the lowest operating expenses (R&D and sales) as a percentage of revenues, which stands at only 12%, compared with a 47% industry average, according to the company.
Due to this efficiency in human capital, the company can sell products at the mid-range of gross margins (48% versus the 53% industry average) and still manage the highest net margins in the industry (28% vs. average of only 4%).
2. Its online community is a unique advantage
Ubiquiti uses the powerful network effect of social networking as part of its business model, which is unusual among hardware companies, many of which were founded in the age before social networking was even a thing. Ubiquiti states in the presentation that its robust online community of tech-savvy customers enables, "highly engaged and loyal evangelists," thereby driving awareness without the use of a traditional sales force. The community also offers real-time feedback directly to R&D teams, which enables faster and cheaper product development. In 2016, the community had 11 million active user sessions, 3 million active member visits (out of 4 million total members), and registered 173,000 new members during the year.
3. Wireless broadband is no joke
Ubiquiti's largest segment is wireless broadband equipment. City dwellers may think they only have the dreaded cable companies for broadband options, but wireless broadband isn't for just rural markets or foreign countries anymore. Ubiquiti highlighted the success of Sling Broadband, a private wireless internet provider, which now has "thousands" of customers in 30 regional US markets.
And while wireless broadband is mostly thought of as a tool for rural or under-developed countries, according to the presentation, Sling is planning additional rollouts in metropolitan markets such as Chicago, New York, Los Angeles, and Dallas. As technology improves (Ubiquiti is touting its upcoming "LTU" technology as a breakthrough in performance), it is possible that wireless speeds could become good enough for a large portion of urban homes and businesses.
4. It is growing market share in growing enterprise markets
Ubiquiti also touts its growth prospects in the presentation, especially that of its UniFi segment, which makes access points, switches, routers, phones, and cameras. In the slide deck, Ubiquiti points out that it only has $0.3 billion out of a $10 billion-$15 billion enterprise market, and that market itself is forecast to grow 10%-15% annually through 2020.
Ubiquiti also points to the fact that its UniFi Wi-Fi segment grew 53% in the past 12 months, while the overall global market grew only 3% in a slow year. In the U.S., Ubiquiti claims it grew its unit market share from 1.7% to 3.1%, which is almost a double in a single year. Clearly, its UniFi products are catching on with many third-party integrators for enterprises such as schools, small businesses, and hotels.
5. The company thinks its stock is cheap
You won't find many companies that will claim their stock is overvalued, but in Ubiquiti's case, the data are compelling. While many analysts tend to compare the company to other enterprise networking businesses, these competitors tend to be units within giant tech conglomerates like Hewlett-Packard Enterprise (NYSE: HPE) and Cisco (NASDAQ: CSCO), which have low P/E multiples due to their massive size. Ubiquiti claims it should be compared to smaller, high-growth hardware companies such as Arista (NYSE: ANET), Avigilon (NASDAQOTH: AIOCF), Infinera (NASDAQ: INFN), A10 (NYSE: ATEN), Fortinet (NASDAQ: FTNT), and Netgear (NASDAQ: NTGR), all of which have similar market caps and revenue growth profiles.
Ubiquiti points out that on a forward P/E basis, these companies trade at an average of 23 times forward earnings, whereas Ubiquiti trades at only 15 times forward earnings. This is despite the company's superior operating metrics and margins.
Summing it up
Perhaps the main thing Ubiquiti wants you to know is that, well, it wants you to know more about it. Releasing this presentation shows the company feels investors and analysts do not understand the company as well as they should. In truth, if the company can maintain its current operating metrics while seizing its apparent market opportunity, it is a company you want to know about. Whether the investor community will give the company credit for its potential, however, remains to be seen.