Synchronoss Technologies Expands Its European Footprint

Synchronoss Technologies (NASDAQ:SNCR) is primarily recognized for doing the behind-the-scenes processing for the iOS (NASDAQ:AAPL) and Android (NASDAQ:GOOG) operating systems on the AT&T (NYSE:T) network. Earlier this year, it began conducting more business with Verizon (NYSE:VZ), and across the Atlantic, it has an expanding relationship with Vodafone (NASDAQ:VOD). Also in Europe, the ink is barely dry on a recent agreement with Telefonica (NYSE:TEF) of Spain. Things are happening in a big way for the company.

Their bread and butter is the workmanlike synchronization of contact information, otherwise known as the network address book, when you upgrade your smartphone or go from feature phone to smartphone. Among other services, it also syncs the e-mail on your smartphone to your desktop computer. For more detailed information about the Synchronoss business model, refer to a previous article of mine.

The company has been a beneficiary of the boom in smartphone adoption, but it's not stopping there. Now that we are being inundated with tablets, and soon to be connected Smart TVs, automobiles, cameras and home automation systems, Synchronoss has the made-to-order technology to hit the big time. This new technology is a cloud initiative that enables the end-user to backup, restore, upload/download videos or pictures, as well as synchronize over the airwaves on all of your wireless devices.

In the United States, the cloud buildup sounds exciting if you are one of the many smartphone owners who will utilize the service, but you can only get so much growth from a saturated market for investment purposes. Granted, the soon-to-be released iPhone 5 should boost domestic revenue and earnings for Synchronoss in the near term, it's the international expansion that may give the company double-digit earnings for the next five years.

First, let's look at the Synchronoss relationship with Vodafone. Vodafone has a 45% stake in Synchronoss' partner Verizon Wireless, which should be a boost to both companies' top and bottom lines in North America. However, I'm more interested in the European potential. Vodafone has 379 million subscribers in 26 countries, and its business in the United States is just scratching surface of what could be a bumper crop of sales for Synchronoss, if indeed it is fed a steady diet of new subscribers.

For two years now, Synchronoss Technologies has been working with Vodafone in Germany in the Business-to-Business Enterprise space. From what I can decipher from CEO Stephen Waldis in the Q2 conference call, this is going to be expanded to three additional countries going forward. Here is what CEO Waldis has to say in the conference call:

...to the Vodafone opportunity, this is a direct result of the good work that we've been doing out of our work in Germany for B2B Enterprise. And because of that, there's going to be a move into additional countries. And right now we're going to target 3 initial countries to take the platform and deploy it out.

Telefonica is another potentially lucrative partner for Synchronoss. Although its headquarters is in Madrid, it only does 10% of its business in Spain. Of its 200,000 worldwide subscriber base, only 20,000 are located in the mother country. In fact, 47% of its business is in the fertile Latin America market. An additional 25% is with other European countries. The initial contract with Telefonica calls for cloud deployment in Spain only, but CEO Waldis feels this is a stepping stone to a much bigger piece of the pie.

Because of confidentiality agreements, Waldis could not give specific details as to what lies ahead for sales projections for both European carriers. However, we are looking at a combined subscriber base of almost 600,000 for Vodafone and Telefonica. This is above and beyond the subscribers Synchronoss is already working with domestically with AT&T and Verizon. If the cloud initiatives pan out, and all of these carriers utilize the Synchronoss service, we are looking at potentially over 800,000 end users.

Although Synchronoss succeeded in spades with its jaw dropping technology with the AT&T network, it still has a long way to go with its cloud strategy to take advantage of the golden opportunity in Europe. However, even the layman knows that cloud computing is cost-effective and labor saving, which is why information technology departments are pulling the plug on its legacy systems. It's a question of when, not if. The CEO believes that early 2013 may be a launchpad year for the cloud initiative, especially with Verizon.

The telltale sign for future growth may be not so much what Synchronoss is doing in the cloud, but what consumer behavior dictates. That consumer behavior is the want and need to manage the multiple wireless devices in our homes. This is where shared data plans come into play. It is the end-user that is requesting a need for heterogeneous services that may be the crowning moment for the company, instead of our current homogeneous content management solutions. An example of a homogeneous cloud solution is Apple's iCloud, which is a vertical approach.

According to Mr. Waldis: "Where the carrier feels they can be successful, and where we can enable that is really creating a horizontal view... when a household has 8 to 10 devices, and you can look amongst your own consumers, there's multiple devices there. There's not just iPads and iPhones, but there's Windows (NASDAQ:MSFT) phones, there's Android phones. And ultimately, where the carriers are making big pushes is also in the digital home."

In other words, instead of being tethered to one operating system, or multiple data plans for a variety of gizmos, you can sync up everything in your personal digital life as long as you subscribe to just one specific carrier.

Mr. Waldis goes on to talk about how he sizes up the business prospects for Synchronoss: "It's all adding up to a lot of carriers looking to see who can do the scale that we can do. And one of the biggest factors that we talk about, and specifically around these releases (of new wireless products), it's not just with Verizon, it's with all our customers, to run things to scale over millions of millions of devices is not an easy task. Outside of maybe the iCloud, I believe we've got one of the largest implementations in the world managing the cloud."

That gives you the conference call in a nutshell. The day after the presentation, investors jumped at the chance to get a piece of the action, and bid the stock up 19%, from $18/share to $22. Let's examine the numbers supplied by Yahoo Finance, and see what you think.

Consensus analyst earnings estimates for 2012 is $1.09/share. This gives us a current fiscal year P/E Ratio of 20. This is expensive for a company that is slated to grow only 11% this year. However, it's always about future prospects. The year 2013 is a different story. Consensus earnings estimates for next year are $1.31/share. Out of the 13 analysts who cover the company, $1.44 is the high estimate, and $1.23 is the low. Projected five-year growth is 18%, which would give us a 2013 PEG ratio of a little under one. Not too expensive for a growth stock if you use that metric.

If you are a believer in the wireless broadband revolution, and are seeking a solid infrastructure play for smartphones and tablets, look no further. Synchronoss Technologies may be a great addition to your portfolio for a five-year ride.

Disclosure: I am long SNCR.