Couple of firms comment on Synchronoss Tech (NASDAQ:SNCR) this morning after the company issued its Q4 results and guidance last night:
- Goldman Sachs notes that while the headline revenue guidance will disappoint, they would be buying the stock on weakness for the following reasons:
1) They believe the vast majority of the changes relate to the company's support of the iPhone where automation rates have been higher than expected (benefit to margin), but activation volumes a bit light and more uncertain than expected (causing more caution on revenue).
2) hey believe the stock's significant underperformance into the quarter (down 34% YTD) already anticipated weaker 2008 numbers, and while the revenue was light, the gross and operating margin outlook are stronger than expected and are a direct offset to the revenue softness.
GSCO's rating remains Buy with a $38 target.
- ThinkEquity reiterates Buy but lowers target to $48 from $55 saying they anticipate that the stock will fall initially before focus returns to the continued strong results and remarkably strengthened margin profile. Ramping Sprint revenues and business-grade services (small business and enterprise) round out the current consumer-centric profile, and should bring greater revenue diversity by late 2008.
Firm notes they previously reduced their revenue expectations for 1Q and full year 2008, anticipating guarded guidance; they were surprised at how soft the actual revenue guidance was, with 1Q at $30-32M and the year at $151-160M. Interestingly, primary blame was fixed on the sunset of some premium SLA payments, which the firm expected to reduce margin expectations. Rather, full-year margins were guided up: GM at 56-58% and OM at 31-33%.
Notablecalls: I listened to the conference call last night and the management sounded very optimistic about the long term future despite what might be viewed as disappointing revenue guidance. The main reason for the revenue shortfall seems to be change of revenue mix with some of the transaction no longer needing SLA (service level agreement) treatment. SLA transactions have higher transaction prices, but lower gross margins. As a result, the revenue is lower than previously expected, but higher gross margins will result with no change to the bottom line.
The stock has been killed into the earnings so I suspect at least some of the shortfall was expected. I believe the initial knee-jerk reaction to revenue guidance will provide an excellent opportunity for bounce play. After all, the shortfall of SLA transactions might be viewed as a reminder of just how good software company Synchronoss really is. No service needed, it's automatic!
Lack of international business and slow ramp of Sprint may be viewed as a slight negative, but that shouldn't come as a surprise. Change of the platform is a major move and cannot be done in a breath. Management still sounded really optimistic about both opportunities in addition to seeing still huge upside to the AT&T.
Be early and buy it for the bounce. I suspect it will go green today. 22% short interest sure will help.