Shares of Ubiquiti Networks (UBNT) continue to gain ground after the company released a strong set of fourth quarter results, accompanied by an even stronger outlook, last week.
The company's turnaround has been impressive as product launches and a promising pipeline continues to boost both revenue and earnings growth prospects. This growth occurs at a much quicker pace than previously anticipated by the company itself and the wider investment community.
Fourth Quarter Results
Ubiquiti generated fourth quarter revenues of $101.2 million, up 6.6% on the year before. Analysts were looking for a small decline in revenues with consensus estimates standing at $93.3 million.
GAAP net income rose by 1.3% to $28.8 million. GAAP earnings per share came in at $0.32, while non-GAAP earnings were a penny higher. As a result of share repurchases, earnings per share were up by two cents compared to a year earlier.
Adjusted earnings came in at $0.33 per share, comfortably beating consensus estimates at $0.27 per share.
While growth on a year-on-year basis has been rather low, the improvements compared to previous quarters has been great after the company was in a serious dip during 2012.
Looking Into The First Quarter
For the first quarter of its fiscal 2014, Ubiquiti guides for first quarter revenues between $116 and $122 million. GAAP diluted earnings per share are seen between $0.37 and $0.40 per share.
The guidance is impressive given the relative weakness of the first quarter last year. At the midpoint of the guidance, revenues are seen up 93.5% on the year before. Earning per share are set to rise by 175% at the midpoint of guidance.
Ubiquiti ended its fiscal 2013 with $227.8 million in cash and equivalents. The company operates with $76.1 million in total debt for a net cash position of around $150 million.
Full year revenues for 2013 came in at $320.8 million, down 9% on the year before. Net earnings came in at $80.5 million compared to a $9.8 million loss last year. Note that Ubiquiti paid out $112.4 million in cumulative dividends on preferreds a year ago.
Trading around $29 per share, the market values Ubiquiti at $2.6 billion, or its operating assets around $2.45 billion. This values operations of the firm at 7.6 times annual revenues and 30-31 times annual earnings.
Ubiquiti does not pay regular dividends at the moment.
Some Historical Perspective
Ubiquiti went public as recent as October 2011 when the company sold its shares at $15 per share to the general public. Shares swiftly moved upwards to the mid-thirties during spring of 2012 before they fell to lows of $8 later that summer as the company was battling with counterfeited goods from China.
Shares have seen a decent recovery ever since, trading with year to date returns of 140%, currently exchanging hands at $29 per share.
Between its fiscal 2010 and 2013, Ubiquiti has grown its annual revenues by a cumulative 134% to $321 million, despite declining revenues over the past year.
Ubiquiti is quite a small company, but shows great geographical diversification. It generates roughly a third of total revenues in North America, a third in Europe and the remainder in Asia and South America. This kind of diversification is rare to see for such a small company.
Obviously everybody cares about the company's airMAX platform which provides multipoint wireless services and seen rapid growth providing scalable services, especially in areas with less developed communication networks.
The company holds a nice niche position in a rapid growing wireless communication market but has seen its fair share of hick-ups. Shares rose to these levels before when the company's products were counterfeited in China, but operationally things were not going great as well.
I wish that I learned about this stock and turnaround story earlier. The counterfeit issues seem in the past as AirMAX and new initiatives boost the growth, earnings and overall appeal of the stock.
Other key operational achievements during the quarter were that UniFri gained market share and the airVision2 integrated video surveillance system has been introduced.
AirMAX is the largest contributor to the current results, but UniFri which is in its third year of shipping is currently number 4 in its market. The company reckons it can overtake Cisco Systems (CSCO) next year to become #1 in enterprise managed AP volume. The company is confident that growth will not hurt margins going forward.
Ubiquiti has never slashed the price of a single product in its history. The strategy to disrupt market with superior offerings, rather than compete with similar offerings, has given Ubiquiti sufficient pricing power.
Given the strong outlook for the first quarter, annual revenues of $500 million and earnings of around $130 million, or roughly $1.50 per share, don't seem out of reach going forward. As such, operations will be valued around 5 times annual revenues and roughly 18 times annual earnings.
I'm quite impressed with the recent results, and even more impressed with the very strong outlook. Despite the 140% returns year to date, as shares came from a very low level, the fundamental improvements in the business seem to outweigh the share price performance.
While it is quite late to joint he bandwagon I would not be surprised if the strong momentum could propel shares to levels above the previous highs of $34 back in 2012.