A list of clients for Synchronoss. Image: Synchronoss Technologies.
Most mobile users don't know it, but some of the services they use to manage their devices comes from Synchronoss Technologies (SNCR -0.78%). The company has established relationships with major carriers Verizon (VZ 0.41%) and AT&T (T 0.46%) to help them with a wide variety of services, ranging from activation services for new customers to authentication and identity management for existing clients. Coming into its fourth-quarter financial report on Wednesday, Synchronoss investors were expecting the company to keep growing at a healthy pace, and its results showed that it is more than up to the task. Let's take a closer look at the latest from Synchronoss Technologies and what it suggests for the company's prospects in 2016.
Synchronoss keeps moving into the cloud
Synchronoss Technologies' fourth-quarter results marked a great end to a strong year. Adjusted revenue rose 21% to $157.8 million, which topped the 19% growth rate that most investors were expecting from the company. Growth in adjusted net income to $28.7 million was slightly slower at 19%, but it produced adjusted earnings of $0.61 per share, which was $0.04 higher than the consensus forecast among investors.
Synchronoss continued its trend of moving more of its business toward providing cloud-based offerings. Cloud services revenue soared 43% from the year-ago quarter to $90.9 million, and that pushed the share of cloud-based sales up to 58% of total adjusted revenue. Unlike in past quarters, Synchronoss didn't break out its activation services revenue explicitly in its income statement, but that matches up with the way in which the company has moved the emphasis toward what it sees as more lucrative business opportunities.
CEO Stephen Waldis was happy about the company's success thus far. In addition to celebrating the cloud success, Waldis also noted that "we are also seeing strong early interest in our Enterprise Business Unit, including the addition of an identity management service offering to the Synchronoss Secure Mobility Suite."
What's ahead for Synchronoss?
In particular, Synchronoss pointed to several business victories during the quarter. First, the company renewed its agreement with AT&T and extended it through 2018. AT&T has been a solid client for Synchronoss for years, and given the shared history that the companies have, it wasn't surprising to see the mobile network renew its ties to the activation-services provider.
At the same time, Synchronoss also entered into a joint venture with Verizon. The deal will involve establishing a next-generation platform for multifactor authentication and identity management, addressing the heightened security concerns that businesses have faced in dealing with employees who bring their own devices to work. The Verizon deal will allow Synchronoss to add even more functionality to its Secure Mobility Platform, and that should help relationships not just with Verizon but also with AT&T and other key clients in the long run.
Finally, Synchronoss formed a board of advisors for its enterprise business unit. The purpose of the board is to identify business opportunities for the new division, with participants including not only Verizon and other mobile carriers but also Wall Street investment firms. All of the corporate members of the board should be able to give their views on where the best opportunities to grow enterprise-market demand are, and Synchronoss hopes that it can use the board to help it meet the needs of potential clients for digital solutions.
Despite the ongoing forward momentum that Synchronoss showed in its report, investors didn't seem impressed, and the stock quickly fell 9% in morning trading following the announcement. As healthy as Synchronoss seems right now, the difficult competitive environment that AT&T and Verizon face against each other and their smaller peers in the U.S. mobile network industry could hold back the need for mobile-related services. If that happens, then Synchronoss will have to work even harder to make the cloud its permanent home.
