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Why Is Ubiquiti Networks (UBNT) Down 6.2% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Ubiquiti Networks, Inc. (UBNT - Free Report) . Shares have lost about 6.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Ubiquiti Q4 Earnings Beat on Estimates, Revenues Up Y/Y

Ubiquiti reported earnings per share of 75 cents for fourth-quarter fiscal 2017, which surpassed the Zacks Consensus Estimate of 73 cents by 2.7% and was up 8.7% year over year. Ubiquiti’s overarching business model and impressive top-line growth drove the stellar performance during the quarter.

Inside the Headlines

Total revenue of $228.6 million steered past the company’s projected range of $215–$225 million. Also, it grew 23.1% on a year-over-year basis and topped the Zacks Consensus Estimate of $216 million comfortably. Solid demand of all product lines across each end market proved conducive to top-line growth.

The company’s Enterprise Technology segment continued to fare remarkably well, with revenues soaring a whopping 48.5% year over year to $113.9 million. The striking growth was fueled by the entire UniFi product family. Disruptive pricing and higher average selling prices of recently launched products also drove the top line. Moreover, high demand for access points, switches, gateways and IP cameras and other complementary products helped increase revenues.

Even the Service Provider Technology segment grew of 5.2% year over year, generating $114.7 million. Higher sales of new offerings to the Ubiquiti community of service providers, including airMAX AC Gen2  drove sales increase of this segment.

On a geographic basis, South America charted strongest growth, as revenues surged 43.5% compared to the prior-year quarter figure. North American sales rose an impressive 18.3% year over year. In addition, Europe, Middle East and Africa, and the Asia Pacific regions grew 26.1% and 6.2%, respectively, on a year-over-year basis.

Gross margin for the quarter shrunk 320 basis points (bps) year over year to 45.4%. Recent revenue growth has been primarily driven by new product offerings, which, in turn, resulted in the reduction of gross margins.

Product Launches

During the reported quarter, Ubiquiti upgraded the UniFi ecosystem, which includes hotspot analytics and high density WLAN improvements, and added new features to the AmpliFi product family. It also, offered GPS synchronization functionality for the airMAX AC product family. This apart, Ubiquiti introduced the UFiber GPON platform, which will help service providers build high-speed fiber networks.

Also, Ubiquiti Networks launched the PrismStation AC base station radios and airPrism sector antennas. This will allow customers to enjoy high-density airMAX networks throughout the world. Moreover, the company expanded the reach of its AmpliFi product family by rolling them out into retail biggies including Best Buy, Sam's Club, GameStop and international retailers.

Liquidity & Share Repurchases

Ubiquiti ended the fiscal fourth quarter with cash and cash equivalents of $604.2 million compared with $533.9 million as of Dec 31, 2016. At the end of Jun 30, 2017, the company’s long-term debt was $241.8 million, up from $191.6 million recorded at the end of Dec 31, 2016.

Also, during the fiscal fourth quarter, the company repurchased 50,000 shares at an average price for $2.5 million at an average price of $49.55 per share.

Guidance

The company released optimistic guidance for fiscal first-quarter 2018. This was suppoted by its solid performance in the reported quarter, favorable business trends and sturdy demand environment. Management projects revenues in the range of $230-$250 million and GAAP earnings in the band of $0.89–$0.90 per share.

For fiscal 2018, the company expects to garner revenues of $1.0–$1.15 billion and diluted earnings per share of $3.70–$4.30. Broad-based demands for products in both its segments are likely to fuel growth. Currently, the Zacks Consensus Estimate for fiscal 2018 earnings is pegged at $3.08 a share on sales of $914.1 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter.

VGM Scores

At this time, the stock has an average Growth Score of C, while its Momentum is lagging a bit with a D. Meanwhile, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is solely suitable for growth investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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