Founder, BWS Financial Inc

Hamed Khorsand

Founder

Independent Stock Specific Research

BWS Financial Inc

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Equity Bottom-Up

<ul>
<li>The incident from earlier this year that caused UI's stock to decline by approximately 20 percent turned out not to be a hack. </li>
<li>The blog report and subsequent industry coverage the incident received resulted in investors fearing there was an inherent risk to using Ubiquiti’s devices.</li>
<li>The coverage this news is now receiving should result in customers once again evaluating Ubiquiti’s products on a broader scale.</li>
</ul>


The incident from earlier this year that caused UI's stock to decline by approximately 20 percent turned out not to be a hack. 
The blog report and subsequent industry coverage the incident received resulted in investors fearing there was an inherent risk to using Ubiquiti’s devices.
The coverage this news is now receiving should result in customers once again evaluating Ubiquiti’s products on a broader scale.


<ul type="disc"><li>
Ubiquiti (UI) reported fiscal first quarter (September) results where the component shortage and extended shipping delays resulted in revenue declining sequentially. Throughout the calendar year Ubiquiti had been successful dodging the supply chain bottlenecks crippling technology companies.</li></ul> <ul type="disc"><li>The revenue decline in the September quarter does not change our opinion on Ubiquiti’s business with the Company reporting an increase in finished goods inventory, which we assume is sitting on ships at sea waiting to unload.</li></ul> <ul type="disc"><li>Ubiquiti reported gross margin of 45.6 percent, which is the lowest gross margin in more than two years. Ubiquiti has decided not to pass through the price increases it has experienced. The enduring cost pressure builds customer loyalty and gives Ubiquiti a greater competitive advantage on price.</li></ul> <ul type="disc"><li>Ubiquiti disclosed it has repurchased approximately 31 thousand shares between October 3 and November 4 of this year. The Company usually buys back shares when business was growing and the stock was not depicting such success. It is for this reason we believe the ailment of the September quarter was due to product being at sea than actual dampening in demand.</li></ul>


Ubiquiti (UI) reported fiscal first quarter (September) results where the component shortage and extended shipping delays resulted in revenue declining sequentially. Throughout the calendar year Ubiquiti had been successful dodging the supply chain bottlenecks crippling technology companies. The revenue decline in the September quarter does not change our opinion on Ubiquiti’s business with the Company reporting an increase in finished goods inventory, which we assume is sitting on ships at sea waiting to unload. Ubiquiti reported gross margin of 45.6 percent, which is the lowest gross margin in more than two years. Ubiquiti has decided not to pass through the price increases it has experienced. The enduring cost pressure builds customer loyalty and gives Ubiquiti a greater competitive advantage on price. Ubiquiti disclosed it has repurchased approximately 31 thousand shares between October 3 and November 4 of this year. The Company usually buys back shares when business was growing and the stock was not depicting such success. It is for this reason we believe the ailment of the September quarter was due to product being at sea than actual dampening in demand.

UI: Enterprise Not Enough to Offset Service Provider

<ul type="disc"><li>
Ubiquiti (UI) ended its 2021 fiscal year with results continuing to pace ahead of expectations as demand for its products remains brisk. Revenue rose sequentially with both service provider and enterprise segments showing growth from the March quarter.</li></ul> <ul type="disc"><li>There has been a steady demand environment for Ubiquiti. The June quarter was rather important, in our opinion, as it was the first time after a blog report negatively blemished a cyber security incident. Demand did not erode like investors had been pricing into the share price.</li></ul> <ul type="disc"><li>Ubiquiti reported revenue of $477.9 million for the June quarter compared to our estimate of $464.9 million. We had originally forecast Ubiquiti to report revenue of $483.6 million in revenue until it became obvious there were too many component shortages in the quarter for Ubiquiti to meet such a figure. The component shortages are expected to persist into calendar 2022, which could curtail revenue growth from its true potential.</li></ul> <ul type="disc"><li>Ubiquiti’s stock is trading at a similar PE multiple to beginning of this year, but the business now has more cash and less debt than the start of the calendar year and a broader product portfolio.</li></ul>


Ubiquiti (UI) ended its 2021 fiscal year with results continuing to pace ahead of expectations as demand for its products remains brisk. Revenue rose sequentially with both service provider and enterprise segments showing growth from the March quarter. There has been a steady demand environment for Ubiquiti. The June quarter was rather important, in our opinion, as it was the first time after a blog report negatively blemished a cyber security incident. Demand did not erode like investors had been pricing into the share price. Ubiquiti reported revenue of $477.9 million for the June quarter compared to our estimate of $464.9 million. We had originally forecast Ubiquiti to report revenue of $483.6 million in revenue until it became obvious there were too many component shortages in the quarter for Ubiquiti to meet such a figure. The component shortages are expected to persist into calendar 2022, which could curtail revenue growth from its true potential. Ubiquiti’s stock is trading at a similar PE multiple to beginning of this year, but the business now has more cash and less debt than the start of the calendar year and a broader product portfolio.

<ul type="disc"><li>A steady flow of demand during the June quarter kept inventory levels suppressed at Ubiquiti (UI). It has been a regular occurrence to observe Ubiquiti sell out of specific products. During the June quarter it was a little more profound than in prior quarters, especially with Wi-Fi 6 devices.</li></ul> <ul type="disc"><li>Ubiquiti has reported three straight quarters where revenue was near or above $470 million. The consistent website traffic from Similar Web, along with Google Trends data, suggests the June quarter is likely to remain in the same proximity.</li></ul> <ul type="disc"><li>Component and shipping issues that have plagued many companies could play a role for Ubiquiti in the June quarter, and act as a ceiling on the quarter.</li></ul> <ul type="disc"><li>The introduction of Ubiquiti’s phone system earlier this year continues to impress us with Ubiquiti experiencing continuous sell outs of the headsets it has available. We maintain an expectation the rollout of Ubiquiti’s phone system to create a recurring revenue model for the Company.</li></ul>

A steady flow of demand during the June quarter kept inventory levels suppressed at Ubiquiti (UI). It has been a regular occurrence to observe Ubiquiti sell out of specific products. During the June quarter it was a little more profound than in prior quarters, especially with Wi-Fi 6 devices. Ubiquiti has reported three straight quarters where revenue was near or above $470 million. The consistent website traffic from Similar Web, along with Google Trends data, suggests the June quarter is likely to remain in the same proximity. Component and shipping issues that have plagued many companies could play a role for Ubiquiti in the June quarter, and act as a ceiling on the quarter. The introduction of Ubiquiti’s phone system earlier this year continues to impress us with Ubiquiti experiencing continuous sell outs of the headsets it has available. We maintain an expectation the rollout of Ubiquiti’s phone system to create a recurring revenue model for the Company.

<ul type="disc"><li>
Ubiquiti (UI) reporting better than expected fiscal third quarter (March) was only part of the story. The Company disclosed it was not able to keep up with demand due to component shortages that have spilled over into the June quarter.</li></ul> <ul type="disc"><li>Ubiquiti has experienced an elevated level of demand since the beginning of the COVID-19 pandemic that has yet to show signs of waning.</li></ul> <ul type="disc"><li>Ubiquiti has expanded its product portfolio to a degree that it should attract more customers to the brand. Ubiquiti is building a portfolio of consumer products.</li></ul> <ul type="disc"><li>We are updating our fiscal 2021 and 2022 (June) estimates to take into consideration component issues and one-times expenses Ubiquiti realized in the March quarter. We are now projecting June quarter revenue to increase to $483.6 million mostly the result of service provider revenue rising.</li></ul> <ul type="disc"><li>Ubiquiti’s sales performance affirms our reasoning for carrying a $370 price target. The stock should reach $400 as investors value revenue growth coming from multiple end markets.</li></ul>


Ubiquiti (UI) reporting better than expected fiscal third quarter (March) was only part of the story. The Company disclosed it was not able to keep up with demand due to component shortages that have spilled over into the June quarter. Ubiquiti has experienced an elevated level of demand since the beginning of the COVID-19 pandemic that has yet to show signs of waning. Ubiquiti has expanded its product portfolio to a degree that it should attract more customers to the brand. Ubiquiti is building a portfolio of consumer products. We are updating our fiscal 2021 and 2022 (June) estimates to take into consideration component issues and one-times expenses Ubiquiti realized in the March quarter. We are now projecting June quarter revenue to increase to $483.6 million mostly the result of service provider revenue rising. Ubiquiti’s sales performance affirms our reasoning for carrying a $370 price target. The stock should reach $400 as investors value revenue growth coming from multiple end markets.

UI: Expanded Product Line Supports Further Growth

United States

Ubiquiti Inc. provides wireless networking products and solutions. The Company offers radios, antennas, and management tools that have been designed to deliver carrier class performance for wireless networking and other applications in the unlicensed radio frequency. Ubiquiti operates in the State of New York.

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