Ubiquiti Networks (UBNT, Financial) provides various networking products and solutions for service providers and enterprises globally. The company posted third-quarter fiscal 2015 results recently. Let’s take a look at the numbers and future ahead.
The third-quarter results
- Revenue for the reported quarter declined 0.5% year over year and clocked $147.5 million, missing consensus estimates of $150 million. Revenue declined across all geographies except North America, which improved by 56.5% on a year-over-year basis. Revenues for South America, APAC and EMEA regions registered year-over-year declines of 28.7%, 5.6% and 14.2%, respectively.
- Service provider segment contributed to major decline in revenue registering 12.1% year-over-year decline. Despite the decline, the demand for airMAX products remained buoyant.
- Enterprise Technology segment registered a robust year-over-year growth of 51% to notch revenues of $41.2, partly offsetting the losses due to the dismal performance of the Service provider segment. The overall growth was on the back of robust demand of the UniFi access points.
- Gross margin expanded by 50 basis points, year over year, to clock 44.7%.
- Ubiquiti exited the third quarter with cash and cash equivalents of $451.1 million versus $388.6 million as at the end of last year. As against this, the balance sheet has $100 million debt.
- Net cash flow from operating activities increased sequentially from $32.7 to $36.7 million.
The future ahead
- Ubiquiti introduced new products like UniFi Video Camera Micro and UniFi Video software, bolstering its UniFi Video surveillance management portfolio. UniFi has grown at a rapid clip during the past three years. This can be a growth driver, as the company expects the growth momentum to sustain with UniFi becoming bigger than airMAX and outdoor wireless.
- The company plans to introduce a gigabit Ethernet router, EdgeRouter X, which will enhance the product portfolio and drive growth.
- For the first time in the third quarter Ubiquiti shipped its airFiber X product and sold related antennas. This is said to revolutionize the last mile wireless industry globally and can be a good growth driver, going forward.
- The company differentiates itself from peers by being committed to R&D.
- Negative impact of currency will be a drag on the top-line. However, the company expects revenues in the range of $140–$150 million and EPS in the range of $0.43 to $0.48.
Wrapping up
Ubiquiti’s third quarter results were depressing. However, the management feels that on the back of diversified product portfolio and launch of new products it can fuel growth in the long term.
However, with a trailing P/E of 15.50 and a forward P/E of 14.89, it’s not very promising at the moment in terms of earnings growth. For the next five years growth is pegged at CAGR of 7.85%, much lower than past five years growth of 38.77%.
So, it’s better to watch this stock from the sidelines, unless there’s a substantial pullback.
