Wednesday, April 19, 2017

A current AIM Fund holding: Synchronoss Technologies (SNCR) by Alex Czachor. “Acquisition Creates Uncertainty for SNCR"

Synchronoss Technologies, Inc. (SNCR, $23.80): “Off to a rocky start in 2017, can SNCR rebound?”
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.

• 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

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