Back to top

Image: Bigstock

Synchronoss Set to Report Q3 Earnings: Buy, Sell or Hold the Stock?

Read MoreHide Full Article

Synchronoss (SNCR - Free Report) is set to report its third-quarter 2024 results on Nov. 12.

The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $43.31 million, indicating a decline of 22.18% year over year. 

The consensus mark for earnings is currently pegged at 25 cents per share, unchanged over the past 30 days. The figure indicates a 44.44% decrease from the year-ago quarter’s reported figure.

SNCR’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, missing once, the earnings surprise being 175.25%, on average.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
 

 

Let’s see how things are shaping up prior to this announcement.

Key Factors to Consider for SNCR’s Q3 Earnings

Synchronoss benefits from strong demand for its personal cloud, which supports smartphones, tablets, desktop computers and laptops. Synchronoss Personal Cloud currently supports more than 10 million mobile and broadband subscribers worldwide.

Its expanding clientele, which includes Verizon (VZ - Free Report) and AT&T (T - Free Report) , has been a key catalyst. These two customers accounted for more than 10% of SNCR’s revenues in the first half of 2024.

This white-label cloud software and services provider is benefiting from strong cloud subscriber growth. In the second quarter of 2024, the number of cloud subscribers grew 6.1%, which drove 5.9% of total revenues. Quarterly recurring revenues were 90.5% of revenues. The trend is expected to have continued in the to-be-reported quarter.

SNCR Shares Outperform Sector, Industry

Synchronoss shares have returned 78.5% year to date (YTD), outperforming the Zacks Computer & Technology sector’s return of 25.2%.

SNCR shares have also outperformed the Zacks Internet Software industry and peers, including BlackLine (BL - Free Report) , over the same timeframe. 

While BL shares have declined 6.1%, the industry has returned 24.8% YTD.

Year-to-Date Performance Chart

 

Zacks Investment Research
Image Source: Zacks Investment Research

 

SNCR stock is cheap, as suggested by the Value Score of A.

In terms of the forward 12-month Price/Sales ratio, SNCR is trading at 0.66X, higher than the sector’s 6.11X.

Price/Sales Ratio (F12M)

 

Zacks Investment Research
Image Source: Zacks Investment Research

 

SNCR’s 2024 View Remains Strong

SNCR offered strong guidance for 2024. It expects revenues between $170 million and $175 million, indicating 5.8% year-over-year growth. Recurring revenues are now expected to be between 85% and 90% of revenues.

Synchronoss expects an adjusted gross margin between 73% and 77% (up from previous guidance of 70% and 75%) and an adjusted EBIT margin surpassing 25%. 

Adjusted EBITDA is now expected between $43 million and $46 million, up from the previous range of $42 million to $45 million.

A strong liquidity position with a cash balance of $23.65 million as of June 30, 2024, is noteworthy. SNCR generated a free cash flow of $7.6 million in the second quarter of 2024. Net free cash flow for 2024 is expected to be $10 million.

Synchronoss reduced its cost of capital in the second quarter of 2024 by repurchasing $60.8 million of outstanding preferred stock at a discounted price of $52.6 million and $19.7 million of Senior Notes at a discounted price of $16.5 million. It used new financing of $75 million for repurchase purposes. 

The lower cost of capital results in annual pre-tax cost savings of more than $2 million. For 2024, the reduction translates to roughly $1 million of cash savings.

SNCR’s Long-term Prospects Are Bright

Synchronoss’ portfolio strength is a driver. In September, SNCR launched the latest version of its carrier-grade Synchronoss Personal Cloud platform, which helps subscribers manage, backup and optimize all types of digital content across a range of mobile devices, laptops, and computers.

The latest update offers AI-powered features, including Memories that curate users’ personal content in a movie format, apart from an improved backup. AI-Enhanced Genius with One-Click Editing feature enables users to edit photos with several AI filters and transformations.

Synchronoss Personal Cloud platform has strong prospects in additional domains, including cloud for the home market, including telecommunication providers, mobile phone insurance market, financial services, security providers and retailers. The overall opportunity for SNCR is estimated to be roughly $13.5 billion.

SNCR’s rich partner base has been a key catalyst. Synchronoss partnered with Verizon to provide the latter’s customers with Unlimited Cloud Storage as part of its new myPlan and myHome Perks offerings.

Its 75% of revenues are under contract for at least four years, which boosts top-line visibility. Synchronoss expects to achieve double-digit revenue growth over the next two to three years, with recurring revenues of at least 90% of total revenues, driven by an expanding clientele and rich partner base. 

Adjusted gross margin and adjusted EBITDA are expected to be at least 75% and 30%, respectively. SNCR expects continued free cash flow over the same timeframe.

Synchronoss Shares - Buy, Sell or Hold?

Synchronoss’ expanding cloud subscriber base is a key catalyst. However, modest near-term growth prospects, along with challenging macroeconomic conditions, make it a risky bet despite a cheaper valuation.

Currently, Synchronoss carries a Zacks Rank #3 (Hold), which implies that investors should wait for a better entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Published in