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Smith Micro: A Safe Haven Producing 65% Growth With 91% Gross Margins

Mar. 06, 2020 6:32 AM ETSmith Micro Software, Inc. (SMSI)S69 Comments


  • Smith Micro's SafePath is likely to benefit from the T-Mobile/Sprint merger, as it made a smart acquisition to increase its chances of becoming the preferred solution for both.
  • It has exciting opportunities with other carriers and for its Home version.
  • The company's other two products generate less excitement, but winning new customers could change that.

If you are looking for a stock to invest that can escape the economic fallout from the coronavirus, we have a suggestion. Smith Micro Software (NASDAQ:SMSI) just produced another good quarter in which its main product, SafePath, is also its fastest-growing, and the risks that were associated earlier with it seem to have greatly reduced.

Apart from strong growth (65% for the year), the company enjoys gross margins in the 90s and strong operational leverage, and it generates considerable amounts of cash flow.

T-Mobile-Sprint Merger

This is, of course, a main item for the company, as SafePath, as well as the tracker it addresses, are going gangbusters at Sprint (S), and the risk is that T-Mobile will impose its own solution.

Well, the merger is going ahead, so that risk looks to be on, but as far as we are concerned, it is rapidly receding behind the horizon due to:

  • Sprint's success and marketing efforts for SafePath (Safe & Found under Sprint's branding) and the tracker.
  • Smith Micro's acquisition of the carrier business from Circle Labs.

With respect to Sprint's marketing efforts (from the Q4CC):

The growth of new subscribers continues to be driven by several marketing initiatives already underway by Sprint. With new efforts plan to roll out shortly such as online advertising, in app messaging, social media campaigns and strong in-store promotions, all with a set goal of adding new subscribers onto the platform.

These marketing efforts are ongoing, and even accelerating. That's no surprise - you don't usually get 28% sequential growth out of thin air. Would Sprint engage in such effort if it were under the impression that T-Mobile was going to kick Safe & Found out? Not likely.

Acquisition of the carrier business from Circle Labs

The company bought the assets and customer contracts

This article was written by

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Finding the next Roku while navigating the high-risk, high reward landscape

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Finding the next Roku while navigating the high-risk, high reward landscape.

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Analyst’s Disclosure: I am/we are long SMSI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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