Synchronoss Technologies (SNCR – Nasdaq)
Dear Bottarelli Research Member,
Welcome back! I hope you had a wonderful Easter holiday.
As we head into Spring, it’s now obvious to me that the Fed will do whatever is necessary to avoid deepening the (dare I say it?) recession that we’re currently facing. By coming up with creative solutions for both the banks and the homebuilders, the Fed is indeed coming to the rescue for those whom they serve. Keep up the good work, boys!
Now, over the last week, I’ve been repeatedly asked the same question:
“Have we hit bottom?”
Each time, my response has been the same: “Not so fast.”
In my view, it’s still too early to tell if we’ve truly hit bottom. That’s why we recommended the DIA April 114 Puts (DIA PJ) last week.For only $0.47 per contract, these puts offer us a super-cheap way to hedge against any further downside selling pressure. After all, Bryan and I both believe we could see one final push lower, so having these puts protecting our small-cap ledger is a very smart and precautionary move. In fact, they’ve already traded as high as $0.64 this week, good for a 36% gain off our Monday entry price. Over the next week, be sure to use any forthcoming market weakness to lock in your profits!
Moving over to this week’s newest small-cap pick, I want to take full advantage of a sector that’s recently experienced some weakness. In fact, over the last few months, I’ve been waiting (and hoping) that this sector would pull back, and now it’s finally occurred. The sector I’m referring to is the high-growth cell phone, wireless, cable, and VoIP group, and the company we’ll invest in today has developed “game changing” software technology that enables the seamless upgrade (or transfer) between cell phone service providers.
This growing company makes money by offering their proprietary software to any cell phone provider interested in reducing the substantial cost and/or problems that cell phone users experience when switching from one company to another. Considering the tremendous level of customer “churn” between competing service providers, the need for this technology is quite substantial.
In other words, instead of incurring the cost to operate a costly technical support department, any phone, Internet, or cable company can use this gem’s software to handle any technological problems with a very high rate of success.
This company charges a flat fee to handle common customer issues, and when you see the list of companies that have already jumped on board, it will truly open your eyes of things to come. And the best part is as more and more service providers learn about the benefits of this new service platform, they’re all lining up to apply it to their business models.
Think about it: If a company could cut your costs (by not requiring you to hire a complete support staff) and reduce your technology problems – all for one flat fee – you bet you’d line up at the door. It’s as close to a perfect business model as it gets, and since this company operates “behind the scenes” most investors aren’t even aware they exist.
Case in point, this company was selected to handle any and all service transfers for Apple’s iPhone. This single iPhone contract could be the trigger that sparks a multi-year run on this company’s shares. Not only that, but Google is now talking about launching a cell phone of their own, and this could spark even more business volume for this company.
Let’s face it. We’re talking about a major consumer trend that’ll only continue to grow stronger. Therefore, the company positioned with the technology to seamlessly handle these transfers is in an awfully strong position. And we’re not only talking about cell phones. This technology also applies to cable and the Internet as well. Now that’s an investment thesis that we should jump on right away! And like I mentioned above, with this entire sector now pulling back, we’re being handed a “sweet spot” for a tremendous entry point.
The company is called Synchronoss Technologies (SNCR – NASDAQ), and let’s pick up shares anywhere under $22.00.
Editor’s Note: While preparing this alert, Comcast and Time Warner agreed to pull together and use their existing content through the use of a new Sprint wireless application. This news is going to help SNCR even more. All things considered, I firmly believe this is a stock that will give us an easy double when it’s all said and done. Perhaps even more.
UPDATES
We covered most of our small-cap updates in last week’s alert, but below are a few additional updates:
OceanFreight (OCNF – NASDAQ) and Star Bulk Carriers (SBLK – NASDAQ): Both of our small-cap dry bulk shippers will only get stronger as more and more goods are shipped on a global scale. Both companies continue to add new vessels, and they also pay out a nice dividend as well. As the economy starts to recover later this year, both OCNF and SBLK should offer us some solid growth. Shipping will continue to play a key role in the global economy for years to come, so continue holding each position.
General Moly (GMO – NYSE): As you know, this is one of our huge winners. As we’ve previously reported, GMO is working towards the final stages in (what some consider) the world’s largest high-grade molybdenum deposit. They also have a second molybdenum property, called Hall-Tonopah, located in central Nevada. Armed with these two properties, their goal is to become the largest primary molybdenum producer by the middle of the next decade. Folks, GMO should be a core holding in our small-cap ledger. It could easily be a $50.00 stock as they move into production. These are the types of picks that can give you huge returns, so make sure that you use this weakness to add or buy GMO. Buy.
China Unicom (CHU – NYSE): This is our long-standing Chinese cell phone play. CHU serves over 140 million cellular subscribers, making them the world’s third largest mobile phone operator. The stock has already handed us a 50% return, and I certainly expect it to deliver more moving forward. Hold.
On that note, I’ll hand things over to Bryan. And as always, let’s continue to use our mentality of being patient, prudent, and calm. This market has once again held strong above the January 2008 lows, and I’m targeting mid-April as a possible support point. If this thesis holds true, we should see upside growth in all of our current small-cap positions for the rest of the 2008 calendar year. So have a good week, and remember to give thanks for the abundance in your life.
Sincerely,
“We Can Become A Household Name In A Year Or Two”
- Stephen Waldis, Synchronoss CEO
Talk about coming full circle! Consider this…
Synchronoss Technologies (SNCR – NASDAQ) officially launched their company in the year 2000 – just prior to the historic telecom meltdown.
Bad timing.
Even worse, SNCR’s first major client was the company formerly known as MCI Worldcom. And as you probably know, MCI went belly-up after CEO Bernie Ebbers was convicted of fraud and conspiracy in the largest accounting scandal in United States history.
All told, MCI shareholders lost around $11 billion – and Mr. Ebbers is currently serving a 25-year prison term at Oakdale Federal Correctional Complex in Louisiana.
When you write your company’s business plan, I don’t think that’s how you’d envision the fate of your first major client.
But in a way, that’s what makes Synchronoss Technologies such a remarkable story. According to their Web site, Synchronoss Technologies is the premier provider of on-demand transaction management software for Tier One communications service providers (CSPs). In other words, instead of crashing and burning alongside MCI Worldcom, SNCR survived the telecom bubble of 2000 by developing technology that ensured success (and profitability) despite the success or failures of the individual telecom companies using this software.
In the years that followed, Synchronoss developed a sophisticated software platform that allows communications companies to automate the activation, upgrade, and renewal of various customer services (such as VoIP, wireless, video, cable, cellular, and Internet). And now, nearly eight years later, they just scored a “grand slam” by securing a long-standing contract with AT&T to transfer and automate service for all iPhones. And thus far, the technology has been performing beautifully.
For example, according to published usage reports, 525,000 Apple iPhone units were activated in the first weekend of their launch. Of those 525,000 activations, less than 2% of customers reported issues with their activation. According to Synchronoss CEO Stephen Waldis, “Our software performed flawlessly.”
Based on the public nature of the iPhone’s activation process, companies across the globe are now discovering the tremendous cost benefits of Synchronoss’ “game-changing” technology. Termed as a “grab and go” experience, this could be the bullish trigger that puts SNCR into the big leagues.
Before the iPhone deal, for example, Synchronoss’ salespeople spent six months trying to kick off an inaugural meeting with a potential new client. But now that companies have witnessed the successful transferal of the iPhone, these same deals can now occur with a single phone call. Considering where this company was 8 years ago, this is quite an amazing reversal of fortune.
Now I admit. When I began researching Synchronoss Technologies, I had no idea what a major technological obstacle it is for competing cell phone providers to quickly and effectively transition from one service plan to another.
For example, when I ditched my Motorola Razr phone for my new Blackberry, I went from T-Mobile service to Cingular Wireless service. In the process, I kept my same phone number, and quite honestly, didn’t give much thought to how the entire transaction occurred. Since then I’ve come to find out that SNCR was the company behind the scenes that made this smooth and effortless transition possible. So in a way, Synchronoss Technologies is the “middle man” between service providers (like Cingular, Verizon, and T-Mobile) and the handset devices (like Blackberries and iPhones).
And the beauty of SNCR’s business model is that they can facilitate these transfers between any company. As is stands today, for example, they have relationships with AT&T, Cablevision, Clearwire, Comcast, Level 3, Time Warner, Verizon, and Vonage. That impressive list reads like a “who’s-who” in the telecom sector.
What’s more, SNCR doesn’t have to get caught up in the tremendous competition between these firms. Since they have relationships with all of the major players in the cable, Internet, and cellular sectors, they’ll continue making money no matter what company eventually wins the highly-competitive convergence war.
In terms of positive press, SBCR has been racking up awards at a break-neck pace. They just won the inaugural 2008 VON Magazine Innovator Award, which identifies companies that represent the future of the Internet Communications industry. They were also named one of Inc. Magazine’s Fastest Growing Companies, were included in Deloitte’s “Fast 50” companies, and were honored as the New Jersey Technology Counsel’s Public Company of the Year.Not to be outdone, they also ranked 3rd in Baseline Magazine’s 50 Fastest-growing Software Companies for 2006.
These accolades are certainly impressive, but let’s take a step back for a moment and ask a very basic question.
What exactly does SNCR do?
Like I mentioned above, they’re widely known for activating the iPhone for AT&T, but it’s their “ConvergenceNow” that really should receive the accolades. You see, ConvergenceNow is their proprietary software platform that automates, synchronizes, and simplifies the order to cash process for voice, video, wireless, and high-speed Internet access. At the same time, it does all of this in a way that reduces costs to its clients and dramatically improving the customer’s experience.
Without boring you with the technical details, the ConvergenceNow software platform provides “game-changing” technology that seamlessly facilitates the activation and orchestration of most of today’s information-based services and devices. The entire ConvergenceNow solution suite includes the following modules:
- Orchestration Gateway: This system is designed to broker transactions across a wide array of partner APIs and protocols, and is easily extended to support additional systems in a minimal amount of time and effort.
- ConvergedWorkflow Manager: This system leverages SNCR’s proprietary workflow technology to process large volumes of complex transactions for bundled services in the shortest possible intervals.
- VisibilityNow Reporting Manager: This platform provides a robust library of reports that can measure key performance indicators around many business metrics. For example, VisibilityNow can serve as a marketing tool to identify campaign successes, cross/up selling analysis, post purchase customer behavior, and create targeted messages to the customer base.
If you listen to anyone using this technology, you’ll see that it’s getting rave reviews.
For example…
Based on such revolutionary and in-demand technology, it’s no surprise that Synchronoss’ stock price moved from a June 2006 IPO price of $8.85 up to a high of $48.03, helped along the way by sales that increased more than 50% in 2007 to $72 million. But now that shares have pulled back to $20.00, we’re faced with a great entry price. After all, when you look at what’s on the horizon for SNCR, you’ll see why there is plenty of room left on the upside.
On one hand, Synchronoss has an opportunity to expand its business with its strategic customers like Clearwire, Comcast, and Level 3 Communications. And as Mark mentioned above, the newly-announced deal between Comcast and Time Warner will only be a sign of what’s to come. Not only that, but the really big opportunity for SNCR will come when Apple moves the iPhone into Europe and Asia. As users across the globe switch over to the iPhone, Synchronoss will be a prime beneficiary.
So you’re faced with a company that just took a major step toward the technology big leagues when AT&T decided to use its software to allow consumers to activate the iPhone. And now, the big growth opportunity (from a share price perspective) will occur when the company begins operating in International markets. This is where analysts say Synchronoss could benefit from the success of the iPhone activation – making Synchronoss a “pure play” on the booming trend of global customer turnover between information providers.
Over the last 52-weeks, SNCR stock has gained 26% compared to a -5% loss on the S&P 500. After hitting a 52-week high on October 11th 2007 at $48.03, the stock moved all the way down to a new 52-week low of $15.15 on March 4th 2008. Both Mark and I feel the bounce off this low (which took shares up past $20.00) combined with quarterly revenue growth of 79.10%, total revenue per share of $3.83, total cash of $94.65 million and $0 debt, makes investing in SNCR at these levels a very attractive proposition.
On a global scale, the number of customer activations in the handheld and wireless network markets is set to explode – and SNCR is perfectly positioned to turn this trend into strong multi-year revenues. Let’s profit off this trend by adding shares of Synchronoss Technologiesto our small-cap ledger now!
PLAY: Buy shares of Synchronoss Technologies (SNCR – NASDAQ) at or under $22.00, good for the week.
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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