Eric,
I didn't take the time to intially delve deeply into your wonderful presentation of HLIT. But Lindy insisted that I put the financials under a microscope. Blame him if you don't like what I write. :)
The broadband market is in the midst of a tornado as measured by adoption rate of broadband subscribers, although HLIT's revenues are not currently meeting hypergrowth standards.
I agree with the first part of that but wonder about the second part. I realize that you might be waiting for stronger winds, especially because the mass market potential is so large there's a good possibility the winds will get stronger. Even so, there are some numbers in there indicating the leading winds of a tornado at the very least:
3/31 to 6/30 growth: 25%
6/30 to 9/30 growth: 39%
9/30 to 12/31 growth: 20%
Sequential quarterly growth of that magnitude indicates a tornado to me. I realize there is no precise definition of a tornado, but the summary point in the book is that one of the authors looks for 100% annual growth for starters. Seeing year-over-year growth in the last two quarters at 99% and 118% as you pointed out and combining it with the sequential growth I show above, I think it can be successfully argued that the tornado has begun.
Another indication of the tornado is the company's critical mass that is surpassed as a result of the rapidly increasing revenue. In only five quarters, the net margins consistently increased from 2% to 17%. During that same period even the gross margins increased by a whopping 20%. I'm not suggesting that we should consider that data as a new criterion for hypergrowth, but since rapidly expanding margins are an investor's dream that is so often the resulting symptom of hypergrowth, it's tough to ignore it in a discussion about tornados.
For those looking for a perfect world, probably the best argument that the tornado has not begun is that the rate of growth has not consistently inreased. While I think a consistent increase in the rate of growth is a terrific indicator of a tornado, the winds of some tornados don't always blow with such consistency.
At the very least, if you had come to the conclusion that the company is a potential gorilla I think you would be looking at the growth data really, really seriously.
One last point about the numbers. You mentioned that with a 45% market share and six leading competitors, it is unlikely that HLIT has twice the share of any other competitor. For those interested in Kings, I think it would be well worth the time to determine that. It is very possible that HLIT is a King, depending on how the market share of the other competitors shakes out. As an example, if the #2 company owns only half of HLIT's share, that would leave 33% to be divided among the rest. That's not at all an impossible scenario.
I still think your report sets a standard for the very best financial reporting, putting most of it to shame.
Just my opinion.
--Mike Buckley |
