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To: Paul Senior who wrote (59596)	7/1/2017 2:29:06 PM
From: Graham Osborn	Respond to of 78714

Nothing I really disagree with. The relatively high PSR is expected with high margins so not as worried about that. The high P/ TB bothers me more, but I know part of it is their foolish buyback policy (I really only like buybacks when they are accretive to tangible book per share, assuming the tangibles are liquid, but I know some would disagree with that view). They have some legal liabilities which could further ding their balance sheet. I may be lowering my standards somewhat by accepting a higher P/ TB ratio on this one; I keep mulling it but I just feel like they can grow that cash balance so quickly if they stop the buybacks. NTES has a lot of the statistical attributes I like, although I haven't delved into full story for reasons mentioned. Thanks again for the idea on IPGP.

To: Paul Senior who wrote (59596)	7/1/2017 2:44:57 PM
From: clm5	4 Recommendations Recommended By gcrispin Lynn Shane M Spekulatius Read Replies (1) \| Respond to of 78714

UBNT - Low cost operator in the network hardware space. Don't have the typical structure of a large market cap network hardware company. Basically no sales staff, no advertising, reduced r&d (or at least used to be) because the CEO did a lot of R&D himself originally. No diverse distribution network, often has issues with having enough stock of products. Basically, a very lean operation but that is starting to change now with a better distribution and inventory being setup to reduce lead-times and reduce customer's difficulty getting products. From what I recall, I think Perra, the CEO, actually does not even pay himself a salary. His entire well-being is from ownership of stock in the company that he created. Ubiquiti has always had a high short interest, the thesis has always been that network hardware is a commoditized business and their margins are not sustainable. I don't think that these people understand how truly different UBNT's structure really is, and how powerful their brand loyalty and cult-following online is. The difference between their margins and the margins of other network hardware companies like cisco or netgear isn't in the gross margin, it's in everything below that. Their operating costs are just much, much lower than anybody else because of how lean the operation is. Thats why anytime you see a quarter where margins take a hit, the stock price plummets whether or not it's a plausible reaction. Side note, because of their lean structure, they're actually able to bring their products to market at much, much cheaper prices than the rest of the competition. It's been quite a while since I've looked into Ubiquiti, but last I checked, some of the access points they sell are at about half the price compared to Cisco's access points that are of the same functionality. Seems that they've been able to take their profits and put them back into the company with very good returns on capital. A few of the products have been a flop, but others have more than made up for the slack. The pipeline still looks good, with a few products being released this year that have gotten outstanding feedback in the IT world. All of this growth is coming from increasing market share in the network hardware space, which is not a growing industry obviously. They are just taking a lot of share from Cisco and the like. So moral of the story, fast growing, low-cost operator company that's able to put profits back into company and get good returns out, trading at a similar multiple to some of its bloated peers even though it has routinely been growing at 20+% a year and looks poised to continue doing so for the near future. Since network hardware really is a commoditized industry, you do run the risk of someone being able to set up a lean operation, coming in and taking some of Ubiquiti's margins. That's not likely considering the other network hardware companies are too established to make a radical change like that now, and a new entrant would need to gather a cult-following like Ubiquiti in order to be successful. But definitely possible. Obviously with UBNT, you're buying the earnings, not the assets - which is the only reason the commoditization is concerning.