Who is the fraud, Unifi or Citron research?

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Dawg10

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Dec 24, 2016
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... but they make money and have very little debt ...
But do they...? There is no Audit Committee and no CFO, there is only Robert Pera.

CEO Pera fired his independent auditors PricewaterhouseCoopers in December 2016 after 2 years together. KPMG now has the ball; we'll see if they can keep it in the air...

There's that smell again.
 

11Blade

Member
Aug 8, 2016
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Citron is an established short seller, Andrew Left and Viceroy Research also put out 'research' on their short positions usually to amplify the down draft.

UBNT has had a downward turn recently, but I think generally when the research hits the street, these guys use it to push the price down and close their positions.

on another note, I replaced a small office network with 3 Ubiquiti AP's, POE 24 port switch and their router/gateway. I retired some old equipment and so-ho router/waps and I couldn't be happier with administration, ease of use and installation. Just works!

Thanks

11Blade
 
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Dawg10

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The Ubiquiti website lists 430 resellers and distributors wordwide; current guidance says Q4/17 revenue will be ~$250MM, so roughly $194,000 per outlet per month. But ubnt also does direct sales, so lets say about 48% is direct (wild ass guess ), this would mean that each and every reseller/distributor would be purchasing ~$100,000 of ubnt product per month. That's one hell of a lot of inventory for a reseller to be on the hook for...

By this scenario, that's >$5,000 of product per day, every day M-F, every reseller, worldwide. Possible, I suppose, but by word-of-mouth ??

Investor Update with the CEO tomorrow 1230ET. This is getting interesting.
 

Aestr

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Oct 22, 2014
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The list of resellers does not include any of the companies I've purchased UBNT gear from. I think in reality you'll of course find that the distributors are moving many units to shops not on the UBNT list and that will heavily skew your $5000 per reseller per day estimate.

Also I think when it comes to understanding this market and the community around it Citron has very little knowledge. From the article/attack:

"Are people so passionate about their home router that they are telling all of their friends and staying up at night helping other people set up their routers? Do people get “evangelical” about their access point in their homes?"

They then proceed to dive into the numbers on UBNT's community. Clearly they do not have experience with communities such as this, or Reddit or [H], etc. Again I'll leave the financials to those who have knowledge in that area, but when I see them claim there is no way UBNT have an evangelical user base it certainly shows that not all of their research is correct.
 
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Dawg10

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Other than direct, the list of resellers/distributors is who Ubiquity sells to; all others must buy through these nodes. Once product is shipped to the resellers it is counted as revenue whether or not it gets resold or distributed down the line. This is no different than car companies: dealerships are on the hook for the inventory once it's sent, and most times the dealer has little/no say in what models or quantity is delivered.

I laughed when "evangelical" entered the CEO's arguments; every snake oil salesman has exploited evangelicalism in some form. Not that the ubnt products are crap, but one person controlling the narrative, including accounting, is laughable.

As for /r/ubiquiti, it has about 11,000 members: hardly the evangelical user base you would think would support a $4.5B company. I don't do facebook but I have zero faith in any numbers attributed to social media; too easily manipulated.
 
Jan 4, 2014
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A lot of news websites seem to be picking up this story...
Citron exposes Ubiquiti Networks - Citron Research

I started getting the sensationalist flags reading citrons stories and wondered how trustworthy they are... evidently I am not alone.

Is Citron Research Committing Securities Fraud?

Disclaimer, I use unifi products, AP and router and would be one of those evangelists that don't exist.


Thoughts?
Just one fraud here, and that's citron

Make me think of a quote "greed is good".

Wouldnt surprise me if either this guy was paid by a competitor, or shorting the crap out of ubnt.


Dont own any ubnt stocks, do use their products

send from a mobile device, so typo's are to be expected :)
 

Aestr

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Oct 22, 2014
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Other than direct, the list of resellers/distributors is who Ubiquity sells to; all others must buy through these nodes. Once product is shipped to the resellers it is counted as revenue whether or not it gets resold or distributed down the line. This is no different than car companies: dealerships are on the hook for the inventory once it's sent, and most times the dealer has little/no say in what models or quantity is delivered.

I laughed when "evangelical" entered the CEO's arguments; every snake oil salesman has exploited evangelicalism in some form. Not that the ubnt products are crap, but one person controlling the narrative, including accounting, is laughable.

As for /r/ubiquiti, it has about 11,000 members: hardly the evangelical user base you would think would support a $4.5B company. I don't do facebook but I have zero faith in any numbers attributed to social media; too easily manipulated.
Right, but distributors obviously move a lot more product than resellers. As you mention all the stores that sell UBNT that are not on the reseller list are buying from distributors which will in turn increase distributor sales. So to take the total revenue and divide it equally between all distributors and resellers to come up with average daily sales is not a very meaningful number.

Also I think looking for a individual hubs of collaboration like /r/ubiquiti is missing the point almost as much as the original article. Fans of the product are everywhere. Just because they are not congregating in a few spots doesn't stop zealous users spreading the word. It seems in most forums Ubiquiti gear is brought up in almost every discussion as a potential solution to whatever the problem is, even when it makes no sense for the application(zealous users are often overzealous:)).

I'm not defending the numbers that UBNT posts, just saying that they do have significant reach due to a core of vocal users that spread out over most tech related communities.
 

Dawg10

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Dec 24, 2016
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My take:
  • Product is being shipped direct to reseller with ubnt booking revenue at the shipping dock.
  • Distributors are on the hook for everything sent to resellers under them. Everyone is financed by ubnt.
  • The CEO/majority shareholder exercises tight control over the business, accounting and communications: you only hear what he wants you to hear, and he says very little. Everything is great.
  • The narrative is massaged to present a business with ever increasing sales, minimizing the impact of returns, bloated inventories and rising accounts receivable. The actual number of units sold is not material; it is what he says it is. Praise Jesus.
  • As AR climbs so does share value. The CEO authorizes multiple share buyback programs in order to extract $^3 by selling his shares back to the company. Timing is important; must manage the narrative. Hey Andy; buy you a beer?
  • Repeat. Carry on until either the bottom falls out or a better bad idea comes along.
And, just for amusement:
  • Arrange for Chinese govt. approved hackers to mis-appropriate $47MM of ubnt receivables: greasing the skids. I expect another payment soon, perhaps in the form of a failed product and related write-off of inflated R&D $.
  • Buy a seat at the Billionaires table; cost is one basketball team. Learn from the best; put that early career boiler room hustle into hyperdrive.
  • Open a R&D center in Riga, home to people developing the same market segment as you. Buy a lot of lunches.

And lastly; please don't misunderstand my point of view. CEO Pera has got balls, and, apparently, the brains to go big or go home. Can't help but admire the guy, but wonder if he can keep it together. KPMG in year 1 has digested PWC's version of the narrative and will have massaged the numbers to best advantage, based upon the new narrative. Praise Jesus. Next year UBNT may be looking for a suitor to absorb the name. And the books.
 
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ultrabay

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Oct 8, 2017
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It would be unfortunate if Ubiquiti turned out to be fraudulent. I would compare them to Olympus in this case as obviously a lot of us have and like Ubiquiti products myself included so clearly they are at least in some regard an actual company.

As for the evangelical bit it makes sense to me from a certain perspective. I tell other people to buy Ubiquiti access points because they are solid value for the money and I can immediately think of two other people who do the same. However it's networking equipment. As much of a nerd as a I am I don't foam at the mouth over the concept or visit Ubiquiti communities unless I am specifically looking for a solution to a problem.

I thought this article offered a good perspective: Ubiquiti shares hammered by Citron ‘fraud’ claim that contains little new evidence

Disclaimer: suspicious person with no post history and recent reg date. No vested interest in Ubiquiti at this time other than I think they make cool stuff.
 

TrevorX

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Apr 25, 2016
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I've been using and selling Ubiquiti hardware for four or five years. I've seen the distribution in my region go from a few guys buying Ubiquiti hardware by the container to a proper authorised distribution channel with a major importer, resellers and retail stockists. There are at least tens of millions of dollars of Ubiquiti hardware in the channel here, and we're a country with only 24 million people. From my experience Ubiquiti hardware is extremely robust and reliable at a price that's an order of magnitude lower than you'd pay for any equivalent product - it has enterprise (maybe even carrier grade) reliability at a consumer price. I know guys in enterprise, industrial, and mining and agriculture that deploy Ubiquiti hardware because it's so reliable - you configure it then send it out, and it will still be there doing its job years later, sometimes in the harshest environments (I've heard of UBNT wifi equipment completely exposed and unprotected in mining sites with iron ore dust and 50°C temperatures that work reliably for years).

So from a product perspective, they have an extremely solid company base - they design and sell highly reliable products at a disruptive price. Now they're in the consumer retail space, selling the best consumer home network solution money can buy (Amplifi). They sell the highest performing MIMO wifi APs ideal for high density environments like shopping centres and stadiums (UAP-AC-HD). And then there's UNMS, which if you deploy and manage large networks, you need to check out. UNMS is free, forever, something the other network vendors charge thousands per year for. It will be game changing. From a product perspective they couldn't be stronger.

From a distribution perspective, in my own country about a year and a half ago they were picked up by a national distributor that has warehouses in every major city, will ship anywhere in the country, maintains good inventory levels, promotes every new product release to their distribution channel and even runs regular certified training programmes. And we're on the exact opposite side of the planet - I certainly can't speak for distribution in every country in the world, but I see no weakness in distribution here, just a company going from strength to strength.

So in terms of Ubiquiti's actual business (designing, manufacturing, selling and distributing network hardware) there's nothing not to like. They would basically have to completely mismanage their company and try very hard to wreck it, and considering how well they've been running it so far that would be completely out of character.

Regarding financial analysis, there are other analysts looking at this now - here's one example: https://seekingalpha.com/article/4111349-ubiquiti-networks-sound-company-unorthodox-business-model

Ubiquiti is a high-quality company with a disruptive business model executing its strategy very well. We think current share price lies somewhere between bargain and fair value. Investors should understand what they are buying into with Ubiquiti Networks: If they can live with price volatility and the occasional hic-up due to ultra-thin layer of management baked into the business model we believe the business is sound and it offers a promising long-term investment opportunity.
I've also been doing my own financial investigation. Someone has taken a fairly hefty short against UBNT in the tens of millions. Since that was optioned, UBNT's stock has fared quite well, which must be frustrating for the shorters. This analysis by Left was released just before the analyst and investor day, which is extremely coincidental - presumably he was hoping to disrupt what is typically a bullish share response to these events. So far, despite him shoving this in every direction possible (including managing to get a spot on CNBC), that hasn't worked - the stock has remained stable and hasn't tanked as he and his associates would have hoped.

Personally, I'm really annoyed at the fact that someone like Left is trying to do this with a company not only making really great products, but doing so at disruptive pricing with a brave and highly efficient business structure. The world is a better place for the existence of UBNT, which is not only giving customers access to reliable network hardware that would otherwise be unattainable, but that helps economic recovery because everyone can stretch their dollars further, and poorer countries to build infrastructure at a time they desperately need access to information, education and telecommunications. I'm also highly annoyed that the SEC is utterly ineffective at controlling deliberate market manipulation like this - it shouldn't be up to UBNT to protect itself with tens of millions and a decade long law suit, this behaviour destabilises the market and should be classed as a criminal act for law enforcement to investigate.

But failing all that, what can we do? UBNT should just keep on doing great business, but the rest of us should show confidence in the face of misinformation. If UBNT's stock remains strong (and even grows) the shorters lose. The more the stock grows, the greater their loss. Wouldn't it be great to give them a good kicking? ;-)

Disclosure: I have no attachment nor vested interest in UBNT beyond using and selling their products. I own no stock, but maybe it's time I bought some...
 

funkywizard

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Jan 15, 2017
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Disclaimer, I use unifi products, AP and router and would be one of those evangelists that don't exist.
I love their access points. The hardware quality and performance is unheard of in the wireless market -- at an excellent price. I've been actively using a lot of different wireless hardware since the 802.11b days. The standard situation is hardware that performs poorly (throughput, range, interference tolerance), and/or is wildly unreliable and/or is wildly expensive. You usually get all 3 -- performs poorly, wildly unreliable, wildly expensive. Any product that was only 2 of the 3 was considered best in class. Anything that only required you make one of these 3 tradeoffs was a unicorn -- didn't exist.

To my understanding, the Ubiquiti guys came over from Canopy because they were tired of the product stagnation forced upon them by management. Canopy was regarded as some of the best products, but were wildly expensive and very lacking in throughput (remember, best in class means *only* terrible in 2 of the 3 typical ways). They started Ubiquiti, and being the engineers of the previous best available system, went on to produce equally good systems with modern technology. The result was far better performance, and the same high levels of reliability people expected.

At this time, there really was nothing better than a $50 - $100 consumer wifi router that didn't cost $1000+ -- i.e. nothing that a knowledgeable person could recommend to a prosumer or small business to use. Ubiquiti was smart and decided to target that market, or more specifically, decided against targeting the enterprise market. The enterprise market has loads of requirements that increase cost without making the product better -- in many cases making it worse. There were already established companies in that market. The low-end consumer market already was buying whatever was cheapest from linksys and netgear. If this customer bought anything other than what was right in front of them at the lowest price, it would be whatever their nerdy friend told them they had to buy. There was no product at the time worthy of that recommendation.

So they stepped in at the right time with the right product and filled a gaping hole in the market. As they say, this market segment had a problem with a "hair on fire" severity. When the knowledgeable among us get asked constantly "which X should I buy", and never have any answer for it, you can bet that when a product comes along that is a good answer to that question, those influencers will become very energized.

So yes, when something comes along in the $100 range with excellent range, excellent throughput, and doesn't mysteriously stop working at the slightest provocation, you can build up an evangelist customer base -- as Ubiquiti has done.

I haven't read anything to make me excited about their other products, and I haven't been impressed by the software on the access points. Luckily, they're so reliable that I only ever had to use the software to initially configure the WPA password and other wireless settings. It's possible that other manufacturers have caught up on hardware quality, but I doubt it.

Gee, it sounds like I might be one of those evangelists that don't exist that go home and spend two hours telling people about a company they don't work for. That's what happens when you solve a hair-on-fire problem.
 

Dawg10

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Dec 24, 2016
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Your testimonials do nothing to address the accusation of stock manipulation; do you really think word-of-mouth will sell a billion $$/year of product, year after year?

A billion/year?
With no sales force...?

Unaudited of course...

It must be magic. Magic, as in slight of hand and deception.

"I believed a solution at just a fraction of the cost combined with a basic features set and some “Ubiquiti magic” would find its way to disrupting the market and breaking the established IT sales dynamics."
---- Robert J. Pera, May 11, 2017
 

funkywizard

mmm.... bandwidth.
Jan 15, 2017
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It only takes one google search to find information that shows that the numbers Ubitquiti reports are ballpark-reasonable:

Worldwide Enterprise WLAN Market Sees Weaker Quarterly Growth in 4Q16; Full-Year Growth Improves, According to IDC

the enterprise segment grew ... 7.2% for the full year 2016 reaching $5.4 billion.
For the full year, the consumer WLAN market came in at $3.98 billion
Key Enterprise WLAN Vendor Updates:
....
For the full year 2016, Ubiquiti grew 86.0% over 2015 and recorded a market share of 4.5%
A billion in revenue (projected for 2018) in a $10 billion market? Why not. You're telling me that a product line, no matter how superior, has no hope of eking out a 10% market share on a low-price, low-cost model? Tell that to Wal Mart, Amazon, and Southwest Airlines.

Does this make the numbers accurate? How would I know? Citron doesn't claim the numbers are "wrong", he claims the numbers are "wildly impossible", which is clearly a lie. The claims made are the definition of fraud, the motive for making those claims is clear, and the history of making fraudulent claims is equally clear.
 

Dawg10

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Dec 24, 2016
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Does this make the numbers accurate? How would I know? Citron doesn't claim the numbers are "wrong", he claims the numbers are "wildly impossible", which is clearly a lie. The claims made are the definition of fraud, the motive for making those claims is clear, and the history of making fraudulent claims is equally clear.
Therein lies the problem: there’s no way to prove Citron wrong, nor is the CEO answering any questions. This in itself is a huge red flag.

I have great faith in greedy people; I have several managing my investments.

“Quite frankly, as long as the accountants had told me that they thought this was an appropriate structure, I felt comfortable with it."
—- Jeffrey Skilling