(By Balaseshan) Deutsche Bank analyst Brian Modoff downgraded rating on shares of Ubiquiti Networks Inc. (NASDAQ:UBNT) to "Hold" from "Buy" and lowered price target to $12 from $30.
Modoff said Ubiquiti Networks reported Q4 revenues of $94.9 million, ahead of his estimate of $94.8 million and consensus of $94.5 million. Pro-forma EPS of $0.30 came in ahead of his estimate and consensus of $0.28.
However, the guidance was disappointing, missing both revenues and pro forma EPS by a wide margin. Overall, the analyst was disappointed by the guidance and feels there is long-term risk surrounding the counterfeiting issues with the AirMax platform.
Modoff said the challenge going forward will be protecting the AirMax product segment. While management discussed a dual-pronged effort, using countermeasures on both the product and legal sides, this will only work with their new product platforms.
With Airmax, channel controls and education must be used to stop the share loss, which are expected to continue for several quarters going forward. The analyst believes it could continue beyond that point.
In the past Modoff argued that the most unique characteristic of Ubiquiti's model was their thin structure, and their "sales force of one". Unfortunately this strength has turned into their Achilles heel.
Even with the problem of counterfeiting, the analyst does not think they will change their structure, nor should they. For anyone that knows the story of Ubiquiti, they are aware Robert Pera has seen this before. Pera built the entire AirMax platform from another Ubiquiti platform that had been counterfeited.
Unfortunately, the new protection in place was not enough, the analyst noted. But for those that know the story, it is not too much of a long shot to believe that Pera will use this as something to build from.
UBNT is trading 42.67% lower at $8.60 on Friday. The stock hit a new 52-week low of $8.52.