Ooma: Get Connected
- Ooma broke out 10% on Q4 earnings and fiscal year 2020 results.
- Positive results pushed the company to break out of a 4 month trading range while the rest of the market is correcting.
- Ooma is expecting continued growth into 2021.
Ooma (NYSE:OOMA) is a name that not everyone will know about, but you should be paying attention too. Ooma is one of the few stocks that is holding well, and net positive since this market correction began on February 20th. While the S&P 500 (SPY) is down 12%, Ooma is up 11%. Yes, this is mostly due to the earnings release, but take that away and the company is still up 1% since the market correction. Ooma is typically quite a bit more volatile than your typical US Telecom, but even after a poor 2019 where the stock was down roughly 6%, the stock has still massively outperformed the industry and the market over the last 3 years as you can see below. As the stock breaks out of the range it has been stuck in, followed with a solid fundamental forecast, now is the time to buy Ooma.(Source: Simplywall.st)
What is Ooma?
Ooma is an American telecommunications company based in Silicon Valley. They offer voice over IP (OTC:VOIP) calling using an Internet connection to support a range of communication solutions for small business, home, and mobile users. In 2015, Ooma was named one of the fastest-growing private companies by the Silicon Valley Business Journal. Then the company went public in July 2015, and the IPO did not go over very well as the company fell as much as 56% into early 2016. The company has 2 business models: Ooma Telo and Ooma Office. In short, Ooma Telo is designed to provide unlimited, free VoIP calls within the United States and features Bluetooth integration and HD voice. Ooma Office consists of a cloud-based phone system including business applications such as conferencing, virtual fax extensions and extension dialing. (Source: Google)
How Were The Results?
Looking first at Q4 results, the company posted revenue of $40.6 million, which is up 17% year-over-year. This is a beat by ~$0.76 million. Subscription and services revenue increased to $37.4 million and was 92% of total revenue, driven by 22% year-over-year growth in combined Ooma Business and Ooma Residential services. Adjusted EBITA was $1.4 million to the positive, which is a large improvement year-over-year as it was negative $0.5 million a year ago. Non-GAAP EPS of $0.04 beats by $0.03; GAAP EPS of -$0.11 beats by $0.06. GAAP net loss was $2.3 million, compared to a net loss of $3.5 million in Q4 2019. These are positive signs as the company moves towards posting positive net income. CEO Eric Stang had this to say:
The fourth quarter of our 2020 fiscal year was outstanding for Ooma, with significant growth in recurring revenues and continued execution of our strategy to expand Ooma Business....With our business solutions today serving customers from one user to more than 20,000 users, we are well-positioned to grow Ooma Business with our award-winning offering for small businesses and custom solutions for larger enterprises.
What's Coming For Fiscal Year 2021?
Looking forward to the full fiscal year 2021, Ooma expects revenue to land somewhere between $167 and $170 million. This would be roughly 12% growth which keeps them in double-digit growth which is important. GAAP net loss is expected to be in the rage of $10.5 million and $12.5 million, and GAAP net loss per share in the range of $0.48 to $0.56. Non-GAAP net income in the range of $2.0 million to $4.0 million, and non-GAAP earnings per share in the range of $0.09 to $0.17. These are all encouraging numbers as the company is fully expecting to grow, and I fully expect them to continue to beat expectations.
Looking more at EPS growth, some analysts are even projecting the company finishes 2021 with an EPS of $0.12 per share. I am not quite on that level, but it shows that the optimism is there. Either way, it is expected to be a big year for the company as you can see below.
Ooma continues to have a fairly clean balance sheet. This is largely in part to having no debt at all. Their short term assets ($48.0 million) exceed their short term liabilities ($46.9 Million), and they also exceed their long term liabilities ($5.2 Million). Ooma also has sufficient cash runway for more than a year based on current cash flow levels. They have done a good job of raising capital over time which has helped fuel the business thus far.
The hardest part for Ooma is going to be stealing market share. There are some large names in the industry that are taking up a lot of market share. The only question for me is if they can continue to steal customers over time. They do offer things that these other companies don't, and they do a very good job out outlining these on their website. Especially with regards to AT&T, Verizon, and Comcast. As you can see below from their investor presentation, they are gaining market share and feel pretty confident they are going to continue to steal from the other players.
What Does The Price Say?
Ooma IPO'd in 2015, and almost instantly crashed 56%. The stock then doubled over the next year. The stock fell 30% in one day in May 2017 on bad earnings but doubled again over the next 18 months reaching an all-time high in late 2018. From there, the stock fell ~30% again, until the stock bounced up on Q3 earnings in November. Since then, the stock has traded in a ~12% range until the stock popped on Friday's earnings going up as much as 12%. Looking below, you can see just how volatile the stock has been since its IPO.
Whenever I buy a stock, I always check a couple of technical indicators. Anyone who has followed me for a while now knows I love the 200-day moving average and that doesn't change here! Looking below, you can see that there is a large history of support and resistance from the 200-day moving average. There are a couple of times where there are "soft" breaks of the moving average, but all of the arrows are points where the stock reacts fairly sharply off of the 200-day moving average. As you can see, I have circled two sharp moves. The first in March 2019, pushed the stock below the average and keeps in there until the second circle in November 2019, launches the stock back above the average. What is hard to ignore here, is the immediate resistance to the moving average in May and August of 2019 as the stock tried to break back above. The stock finally broke through on Q3 earnings in November, and again, was tested 3 times very quickly. Twice in January, and once in February (as the market was correcting), the price bounced right off the 200-day moving average and rebounded quite well each time.
One of the other things I always like to see is stocks breaking out of a trading range. This can be either a bullish or bearish signal depending on which way it breaks out. In Ooma's case, the stock broke out of the range and gave the official buy signal. As you can see below in the hourly chart, the stock had tested both the ceiling and the floor several times since November 2019. As the earnings came out, and the stock moved on Friday, I went long at $14.36. The stop for these moves is always really easy because there is clear support at the $12.20 level. The stock may very well come back into the trading range, but if it does not, the stop will then move up to the top of the range as the stock beings to appreciate. Ideally, the stock comes back and tests the top of the range over the next month to solidify that new support. Very commonly, old resistance becomes new support, as seen with the 200-day moving average.
As you can see, Ooma is a company that is still growing at a fairly decent rate, and 2021 is expected to be a great year for the company. This paired with very positive price action, especially in a market that continues to sell off, is why I am buying Ooma. This could change very quickly if the price catches the coronavirus like most of the market has, but as cash gets freed up, I am looking to find good companies that are either being hit too hard or performing very well in this tough market. This is why it is time to get connected with Ooma.
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Analyst’s Disclosure: I am/we are long OOMA. 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.
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