Synchronoss Technologies Inc (SNCR)

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Synchronoss: Turning Out to Be a Rotten Apple

About a year ago, all we heard about was the iPhone. Please no hate mail, as I do love Apple (AAPL) as a company. The only problem was that the market completely overshot the mark on this wonderful device. The thought that it would be beautiful, be able to wash your car and cost next to nothing was a little absurd. This product has revolutionized some things and I think the story is still alive and well at Apple, but I am unsure about some other companies.

Synchronoss Technologies (SNCR) shot up out of nowhere when it signed its deal to work with Apple on the iPhone. SNCR produces software that allows users to activate their phones through automation, saving time and money so a person does not have to perform the task. The company was formed by a couple of individuals who left AT&T (T), building a customer base around the people they used to work with. This is an important piece of the puzzle, as management relies heavily on its relationship with AT&T, and without this work it might not have a company.

The first quarter earnings miss is going to be a painful one as early indicators show the stock is down over 30% in after hours trading. This is another example of being priced for perfection. SNCR tried to cover the miss as it stated it would start a $25 million buyback, but this is far too little after lowering guidance.

This lowered guidance was in a quarter where the CEO himself stated that the company had more non-AT&T wins with added revenues than ever before. He also stated that the lower guidance was caused by a decrease in revenue from the iPhone. This either means that Apple's anticipated 3G phone will no longer be associated with SNCR stock or that it has decreased what it will pay for SNCR's service, and we all know how wonderful Steve Jobs is at increasing his own margins at the expense of others.

Right now, there is a huge sign to sell as there will be massive panic over the fact that SNCR may not be included in the new iPhone 3G application. If this is so, it could completely destroy the company's top and bottom line. And even if SNCR is included, how many people are going to pirate their phones to new carriers overseas and beyond? There is no doubt that the iPhone is and will be a success for years to come, but what if the phones will no longer be set up through SNCR and will be done over the internet through a cheaper source? Either way, this is terrible news.

If you were long the stock I'm sorry and if you were short then congrats. The company probably won't be destroyed by this as AT&T has many products associated with SNCR, but revenues from AT&T decreased from 76% last year to 72% this year. The company is trying to make this look like a win, when really it may be getting more revenue from elsewhere because it is losing its base.

If we look at the financials, the stock earned 13 cents a share as opposed to 12 last year, which is barely enough growth to represent the current PE of 40. Revenue increased 36% but costs increased 42%. Earnings were destroyed by poor margins and cost control.

Based on the way the year has started, it could very easily post earnings of around $.82 a share, which would place the stock's earnings growth at 15% year over year. If this is the case, the stock should trade for a PE of roughly 20 and give a year end stock price of $16 per share. Looking at the chart I'm guessing we will see the stock crush any kind of prior positive trend, and on huge volume. I would not expect this stock to do much over the next 12 months.
http://seekingalpha.com/article/76071-synchronoss-turning-out-to-be-a-rotten-apple?source=yahoo