By:
Alex Czachor, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Synchronoss
Technologies, Inc. (NASDAQ: SNCR) is
a global software and services company who primarily provides cloud management
solutions and device activation services for mobile carriers, retailers and
OEMs.
• The company markets and
sells their solutions and services primarily in the United States (86.4% of 2016 revenue) but also has
exposure to other countries which include: China (2.7%), Japan (1.1%),
Germany (0.9%), United Kingdom (0.7%) and France (0.6%).
• On December 6, 2016
SNCR announced the acquisition of Intralinks Holdings at a price of $13.00/share
which was good for an equity value of roughly $821 million. Through this acquisitions Ron Hovsepian, CEO
of Intralinks, was appointed CEO of SNCR as the previous CEO and founder of
SNCR, Stephen Waldis, will transition to executive chairman of the board.
• Karen Rosenberger, CFO
of SNCR, is stepping down from her executive position effective April 1, 2017
in order to “pursue other opportunities”.
The announcement of her resignation was relatively unexpected.
• SNCR is coming off of
one of their worst performing quarters.
In 4Q 2016 sales dropped 8.06% from $132.48 million to $121.72 million. The company missed the Q4 consensus estimate
in both revenues and EPS.
Key
points:
2016 was a year of major
announcements for SNCR. These
announcements included the acquisition of Intralinks Holdings, Inc., the
divesture of their activation business as well as multiple changes within
executive management. Management stated
that these changes are due to their efforts to make a pivot in their overall strategy
and focus more on the expansion of their enterprise business. Moving forward management believes, with the
acquisition of Intralinks, that their enterprise segment will represent a
significant portion of their future revenues and will help to better diversify
their business model.
Even though management
sees the acquisition of Intralinks and the divesture of their activation
business as a positive sign for future growth the market has not yet seemed to
agree. Since the announcements came on
December 6th the share price has declined a steep 51.42%. Many investors saw this acquisition as a
negative event as with this deal comes an enormous feeling of uncertainty due
to the large amount of debt in which it required as well as the transition in
the CEO position. This announcement
coupled with Karen Rosenberger’s (CFO) decision to resign has caused the share
price of SNCR to drop dramatically throughout Q1 2017.
Q4 2016 also did not
prove to help SNCR’s stock price as SNCR fell short of the consensus estimate
for EPS and revenues by $0.02/share and $1.31 million, respectively. Initial guidance for 2017 was just reiterated
by management at $815 million in revenues and $2.53 in EPS. Investors should be paying close attention to
SNCR moving forward as it will be interesting to see the results of the first
couple of quarters in 2017 as it may help to shed some light on the company’s
evolving strategy.
What
has the stock done lately?
As of December 6, 2016
SNCR has been having a rough go of things within the markets. On this day the company announced the
acquisition of Intralinks Holdings for $821 million which to SNCR is a big pill
to swallow considering the company only had a market cap of approx. $2 billion
at the time of the announcement. Due to
the size of this deal and the large debt in which it will acquire coupled with
the transition into a new CEO caused the stock to drop from $49.94 to $41.27 in
a single day (Dec. 6th) representing a 17.36% decrease. Since December 6th the stock price
has yet to recover and has been cut in half as it has decreased 51.42% to its
current price of $23.80.
Past
Year Performance:
SNCR has suffered a less
than fortunate year as their stock price is currently trading at its 52-week
low of $23.80 with a volatile range of $23.80-49.94. Up until the end of Q4 2016 the stock was on
a climb and reached its 52-week high of $49.94 but due to the Intralinks
announcement coupled with multiple transitions in executive management the
stock has been in a decline ever since.
Source:
FactSet
My
Takeaway:
Currently SNCR’s stock is
facing a bit of pressure as investors have increasingly become more uncertain
about the company’s future. Throughout
Q1 2017 SNCR’s stock has been consistently falling which I believe can be primarily
attributed to the uncertainty within the Intralinks acquisition as well as the
transitions taking place within executive management. Due to these risks I believe SNCR should be
watched closely moving forward, as the beginning of the year 2017 could provide
more color on SNCR’s evolving strategy to expand their enterprise
business. Until then, as of 4/12/2017, I
believe a sell rating should be placed on SNCR for the AIM Small Cap Equity
Fund.
Source:
FactSet
