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Why Shares of Ubiquiti Networks Tumbled Today

By Timothy Green - Feb 8, 2018 at 1:10PM

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A mixed quarter featuring a write-off related to a failed consumer product left investors unhappy.

What happened

Shares of Ubiquiti Networks (UI 4.39%) slumped Thursday after the networking hardware company reported mixed fiscal second-quarter results. While it beat analysts' estimates for revenue, its bottom line came up well short of expectations. The stock was down about 12.7% at 1:07 p.m. EST.

So what

For the period, which ended Dec. 31, Ubiquiti reported revenue of $250.8 million, up 17.5% year over year, and about $10.9 million higher than the average analyst estimate. Service provider technology sales rose 3.7% to $119.9 million, while enterprise technology sales soared 33.7% to $131.0 million. The company said that much of that growth was driven by its UniFi AC and airMAX AC product families.

Ubiquiti's mobile announcement app for its UniFi products.

Ubiquiti's mobile announcement app for its UniFi products. Image source: Ubiquiti.

Non-GAAP earnings per share came in at $0.76, up from $0.72 in the prior-year period but $0.13 shy of analyst expectations. Non-GAAP net income declined slightly, with stock buybacks boosting per-share profits. Ubiquiti reported a GAAP net of loss of $51.5 million, driven by a $110.7 million charge related to the Tax Cuts and Jobs Act.

Ubiquiti's net income decline was in part due to a gross margin slump. The company took an $18.6 million charge related to obsolete inventory, vendor deposits, and loss on purchase commitments associated with its FrontRow consumer product launched last year. Lower-than-expected sales during the holiday season prompted the write-off.

For its third quarter, Ubiquiti expects to produce revenue between $245 million and $260 million, and non-GAAP EPS between $0.92 and $0.99. The company believes that its fiscal-year results will come in at the low-end of its previous guidance.

Now what

While Ubiquity posted strong revenue growth, a misfire with its $399 FrontRow camera pushed down the bottom line. The company's Q3 guidance straddled the average analyst estimate for both revenue and earnings.

Selling consumer devices is hard, especially for an enterprise-focused company. Investors are punishing the stock for the company's weak second-quarter profit and so-so guidance, despite solid growth in the core business.

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