IDC recently reported smartphone shipments topped one billion in 2013. That means big business for Synchronoss Technologies (NASDAQ:SNCR), the company that activates smartphones for the AT&T (NYSE:T) network. A big knock on Synchronoss in the past has been its over reliance on Ma Bell as a revenue source, but that's all changing as the company branches into its personal cloud platform. Think Apple's (NASDAQ:AAPL) iCloud for multiple operating systems on a variety of mobile devices which include: automobiles, smart watches, fitness bands and tablets.
Verizon (NYSE:VZ) was the first company to deploy the personal cloud platform. Telefonica (NYSE:TEL), Vodafone (NASDAQ:VOD), and AT&T are now in the early launching stages. In December of 2013, Synchronoss announced they had reached ten million subscribers for the personal cloud since early Summer. In the most recent conference call, CEO Steve Waldis sheds light on the enormity of the data the company manages in this undertaking:
As of today our cloud-platform solutions have more than 40 petabytes of storage under management. Now to put this in perspective, a single petabyte is equivalent to 20 million filing cabinets full of text, and 40 petabytes is roughly to equal 200 times all the data collected in the Library of Congress.
That 40 petabytes is just a small sample size. ABI Research predicts that today's 10 billion wirelessly connected devices will grow to 30 billion by 2020, so Synchronoss Technologies has a huge addressable market with "The Internet of Everything".
What sets Synchronoss apart is that they're operating system agnostic, and have teamed up with the major Tier 1 Telco companies to compete against the handset manufacturers for your data storage dollars. Companies like Apple with the iCloud want you to remain exclusively in their ecosystem. Synchronoss and the telecoms foresee that data backup is needed on multiple operating systems in today's complex world: Windows (NASDAQ:MSFT), Android (NASDAQ:GOOG), iOS, and technologies that haven't been invented yet.
Synchronoss will never be a household name because it's a white label solution for the telecom carriers that brand and promote their own initiatives. A good example is its new Integrated Life Platform, which enables seamless activation of next-generation connected devices. AT&T is the first carrier to deploy the technology with the AT&T Drive platform for connected cars. Tesla (NASDAQ:TSLA) and AT&T recently announced a multi-year partnership to enable Tesla owners to utilize the connected car technology. Synchronoss wasn't mentioned in the press release, but it's the engine behind the scenes.
According to Nick Lazzaro, EVP and president, North America, Synchronoss Technologies:
The platform provides mobile operators across the globe a tremendous opportunity to offer more shared data plans, while at the same time providing customers access to their content on a multitude of devices, including automobiles...
With this technology you can download iTunes playlists via a digital locker, as well as access automobile diagnostic information on any device as part of the overall shared data plan. To prepare for this new service and the increased cloud adoption, the company spent much of 2013 building out eight data centers in the United States and Europe.
Another new white label service at Synchronoss is WorkSpace, a cloud-based file, sync and share offering for small and medium sized businesses. This service provides employees with secure access to corporate data anytime, anywhere. They'll be going head-to-head with Box, Dropbox and Citrix Systems (NASDAQ:CTXS) with WorkSpace, which is scheduled to be launched in early Q2 by Vodafone.
I can't emphasize enough that a bet on Synchronoss Technologies is also a bet on the telecom carriers. It's also important to note that with both WorkSpace and the Integrated Life Platform, the company is in the introductory stage, so revenues from both projects won't ramp up significantly until 2015. That said, the cloud business is booming. Although in Q4 the activation side of the business decreased to the lower double digits on a revenue basis, Cloud Services sales increased 75% year-over-year. Wall Street took notice and propelled the stock significantly higher after the latest conference call.
After an impressive quarter, Synchronoss executives gave upbeat information on what to expect going forward in 2014:
- Cloud revenue growth guidance is 40% (cloud accounts for 40% of current sales, activation services the remainder 60%).
- Revenue projection is $415-$428 million, a year-over-year growth of roughly 20% at the midpoint.
- Margin guidance is 25%.
- Earnings per share is $1.60-$1.65.
The following statistics are provided by Yahoo Finance:
- Trailing P/E Ratio 55.9.
- Trailing Twelve Month Enterprise Value/EBITDA 15.44.
- Trailing Twelve Month Price/Sales 3.65.
- Most Recent Quarter Price/Book 2.85.
- Short Float 28% (as of January 31st).
Additionally, if you take the current share price of $32.50 and an EPS of roughly $1.63 (as projected for the current year), we get a 2014 P/E ratio of 19. At a 20% growth rate, that equates to a PEG ratio of 1.
If you like growth at a reasonable price, then Synchronoss Technologies may be a nice addition to your portfolio. I've owned it for two years now, dollar cost averaging with my cost basis at $22. It's been a good investment for me, but the best is yet to come. However, buyer beware. It's still a small to mid cap stock with a market capitalization of $1.2 billion. It trades in a wide range. The 52 week high got up to $39, and the 52 week low was $24. Things have reverted to the mean.