To Synchronoss: You're a Growth Stock, Act Accordingly

 |  About: Synchronoss Technologies, Inc. (SNCR)
by: Robert Constantine

May 6th is arguably one of the biggest quarterly reports for Synchronoss Technologies (NASDAQ:SNCR). The stock is down over 43% since January and has been sold off hard each of the last two earnings reports. It has popped recently, despite management 10b5-1 trading plans kicking into gear again. The reality is the stock was way oversold. So what is an investor to do?

Let's take a look at what's in the wind:


Introduction of the 3G iPhone. This should help spice up the numbers domestically in June and for the remainder of the year. While this is a positive, remember, friends, the iPhone does not need Synchronoss.

Sprint Ramp. Sprint has been pushing the $99 all-you-can-eat plan for its Smart Phones (along with other competitors) in an attempt to reduce churn. Nothing like a good old-fashioned pricing war to turn the wheels of provisioning. I like the moves Dan Hesse and his team have been making and expect them to continue to streamline and improve the operations. Synchronoss should play a big part in this.

AT&T Wireless. Business is booming. Wireless growth at the largest domestic CSP grew handsomely at 17% for the quarter. AT&T accounts for approximately 76% of Synchronoss' revenues to date.

Cash. $100M in cash is always a good thing.


Revenue Concentration. With AT&T accounting for 76% of the company's revenue, the stock is still very risky. Analysts and shareholders will be looking for details on progress in this area. Failure to bring this number down soon will only add to the anxiety. Also, AT&T's contract is up in January of 2009.

Europe. The BIG mystery. Have they signed someone? I hope so, but they are only about 7 months into the announcement, 12 months if you count the competitive process to identify two system integrators (Siemens and Alma). My gut tells me the sales cycles are real long (approximately 18 months) so don't expect an announcement. If they do, watch out shorts. I wouldn't worry, I have been critical of the company for its handling of the announcement. It was highly promotional and lacked real substance. Also, let's not forget the change in strategy by Steven Waldis, opting for a broad based adoption of the Synchronoss Platform as opposed to a more singular focus (iPhone). It was and remains a big risk.

Canada? As I was reading an article about Rogers Communications and the iPhone I was struck by a comment made that basically inferred that Apple was making concessions with carriers. This isn't new and could be related to revenue sharing and/or maybe to the provisioning process. Who knows? But it appears that Apple is shaking its coat tails in an effort to exceed the 10Million water mark by year's end. It's clear Europe is doing fine without Synchronoss, but then again who knows. It would be nice to hear Rogers signed on with Synchronoss, but all indications are that Apple is no longer in full control of the negotiations.

Cable Companies and WiMax. Who cares! This part of Synchronoss' business accounts for approximately 24% of their revenue. Despite the increase in VoIP and related services, it still means very little to the bottom line. Most of the businesses are in major trouble and hemorrhaging cash, with the latest addition being Charter who is backstopped by old Microsoft (NASDAQ:MSFT) money.

Our Stock is Down 43% YTD - 4 Million Shares Please. The company in its latest filing is requesting shareholders approve an increase of 4 Million shares for Employee Retention and Acquisition. Great! Just what shareholders need, Gladys in Accounting selling a few thousand shares under her 10b5-1 trading plan right before earnings…Here is what burns me about this; the company takes cost out of others business by REMOVING THE MANUAL PROCESSES. So while the move from 170 to 232 employees (36% increase) may have been required to handle incremental business from AT&T, Sprint, Clearwire and Charter programs, do they not obtain some synergies once the processes become more automated? Additionally, the European strategy was designed to be less labor intensive due to the revenue share with Siemens and Alma. I can't see rewarding employees beyond what is currently in the kitty. Also, as I look at their so-called peers, the stocks and business models have stalled. Mitigate the business risk first.

Until then, I think you know how I voted.


Synchronoss will have to exceed the $0.17 EPS estimate (the high end of the range), by at least 5 cents, if they want to reignite the stock. Very doable given the positives outlined above. I didn't mention some of the other initiatives like big-box retail activations, alliance with ATG and marketing directly to handset manufacturers. This is just marketing fluff until they prove otherwise. If you want to get sick, go to page 12 of the Benchmarking of Base Compensation and Equity Holding section. Then go take a look at the stock charts of each of the peer companies listed. It is a massacre of shareholder equity and the boneyard of broken corporate promises. Though Synchronoss says they compensate in the mid-range and pay what is necessary, let's hope they can avoid the same fate, and the Executives they have brought on board can deliver…To date, the charts look pretty close. IPO in the single digits, skyrocketed, then crashed, very few have a pulse. Buyer beware.