Post on 15-Aug-2020
McIntire Investment InstituteAt the University of Virginia
Long Pitch:
Syniverse Technologies
(NYSE:SVR)
M c I n t i r e I n v e s t m e n t I n s t i t u t e1
(NYSE:SVR)
Prepared by Hideyuki Liu, CFO | Jan 27, 2010
Presentation Outline
• Business and Stock Overview
• Thesis Points
• Misperception
• Value Added Research (VAR)
M c I n t i r e I n v e s t m e n t I n s t i t u t e2
• Value Added Research (VAR)
• How It Plays Out
• Risks
Business and Stock Overview
• Syniverse Technologies (SVR) provides wireless voice and data services for telecommunications companies worldwide
• Serves more than 800 communications companies in over 160 countries
• Its integrated suite of services include technology
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• Its integrated suite of services include technology interoperability services, which enable the invoicing and settlement of domestic and international wireless roaming telephone calls and wireless data events
• Syniverse was founded in 1987 and is headquartered in Tampa, Florida.
Business and Stock Overview
Share Price (Jan 26): 17.40 52-week Range: 12.03 – 19.56
Market Capitalization: 1.2B % of 52-week high: 89%
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P/E: 17.69 Total Cash: 216MM
EPS: 0.98 Total Debt: 655MM
Business and Stock Overview
M c I n t i r e I n v e s t m e n t I n s t i t u t e5
Thesis Points
• Company Fundamentals
– Reliable business model
– Strong historical performance
– Clean balance sheet
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– Clean balance sheet
• Growth Potential
– Growing demand in emerging markets
– Continuously changing technology standards
– Acquisitions
Company Fundamentals
• Leading provider of roaming enablement, signaling,
and interoperability solutions to the wireless industry
– SVR allows wireless operators to deliver services to subscribers including roaming, SMS, MMS, MDR, caller ID, number portability, and wireless value-added video
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ID, number portability, and wireless value-added video services
• Long-term contracts
– Most of SVR’s revenues are transaction-based charges under long-term contracts, typically with terms averaging three years in duration
Company Fundamentals
• Strong historical performance
– During the course of over two decades, SVR has continued to demonstrate an ability to adapt with ever-changing telecommunications technology with a contract renewal rate of 98%
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contract renewal rate of 98%
• Solid balance sheet
– At a time when many firms are struggling with a fragile balance sheet, SVR holds 335MM in current assets (217MM in Cash) against total liabilities of 655MM
of which 50MM are current liabilities
Growth Potential
• Clearinghouse services like SVR translate various network signaling and billing protocols to allow different wireless operators to offer and be compensated for roaming
M c I n t i r e I n v e s t m e n t I n s t i t u t e9
and be compensated for roaming services
– Demand for clearinghouse services is primarily driven by the number of domestic and
international wireless roaming
subscribers
Growth Potential
200
250
300
US Wireless Subscribers (in millions)
1200
1400
1600
US Yearly SMS Messages(in billions)
M c I n t i r e I n v e s t m e n t I n s t i t u t e10
0
50
100
150
200
2000 2005 2009
Wireless Subscribers
0
200
400
600
800
1000
2000 2005 2009
Yearly SMS Messages
Source: CTIA – The Wireless Association
Growth Potential
• The US wireless industry has grown from an estimated total subscriber base of 97.0 million in 2000 to 262.7 million by mid-year 2008, a 171% increase
• This explosive level of growth can be extrapolated globally
– In fact, Syniverse saw 74% revenue growth in 2008
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– In fact, Syniverse saw 74% revenue growth in 2008 from customers outside of North America
– In 2004, revenues from outside North America were at 8%; in 2008, approximately 28% of Syniverse net revenue came from customers located outside of
North America
Growth Potential
3000MM
Total Worldwide Subscribers
42% Rise
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2006 2011
566MM
Total Global Roaming Subscribers
87% Rise
Source: Informa, industry research firm
Growth Potential
2.6
Worldwide SMS Traffic
5.5 Trillion
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2.6
Trillion
(2007)
5.5 Trillion
(2013)
Compound Annual Growth Rate of 13%
Source: Portio Research
Growth Potential
51.4
Worldwide MMS Traffic
171.7
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51.4
Billion
(2007)
Compound Annual Growth Rate of 22%
Source: Portio Research
171.7
Billion
(2013)
Growth Potential
• Ever-changing technology
– The emergence of next-generation wireless communication
services such as WiMAX, LTE and VoIP, future government
mandated changes, and new applications for existing
communications services will drive future industry growth
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communications services will drive future industry growth
Skype’s on-net international
traffic (between Skype users)
grew 51 percent in 2008, and is
projected to grow 63 percent
in 2009, to 54 billion minutes
Growth Potential
Thanks to its strong balance sheet, Syniverse is able to
expand its businesses globally
M c I n t i r e I n v e s t m e n t I n s t i t u t e16
ITHL
Acquired VeriSign’s
Messaging business
for 175MM in Cash
(2009)
Acquired BSG;
expansion into Europe,
Asia, and Middle East
for 290MM in Cash
(2007)
Acquired ITHL;
expansion into Asia-
Pacific for 45MM in
Cash
(2006)
Misperception
• Syniverse’s niche in the market will be displaced as wireless companies consolidate and/or look for in-house solutions
– Evidence: Verizon-Alltel merger; Alltel/Spring Insourcing initiative
– Why it’s wrong: Verizon still renewed its contract at the
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– Why it’s wrong: Verizon still renewed its contract at the end of 2009; Increase in global demand will more than offset negative pressures
Misperception
• Syniverse will not realize the global demand due to macro forces and/or greater competition
– Evidence: Experienced lower sales due to reduced capital spending by operators in Asia-Pacific related to economic downturn and increased competition by major
M c I n t i r e I n v e s t m e n t I n s t i t u t e18
economic downturn and increased competition by major equipment manufacturers (e.g. Ericsson, Nokia, Siemens) and local system integrators
– Why it’s wrong: In mid-November, Syniverse achieved its 100th mobile operator customer and strengthened its position in the region with the acquisition of VeriSign’s Messaging and Mobile Media Services
Value Added Research (VAR)
• Anonymous lawyer for US Telecommunications Company
– Talked about trademark and copyright issues on the global level.
– TAKEAWAY: Even from a legal standpoint, there are significant barriers to entry for one company to dominate the entire globe
• Randall Rager, Verizon sales engineer
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• Randall Rager, Verizon sales engineer
– Talked about Verizon’s trends with regards to in-sourcing and out-sourcing
– TAKEAWAY: It’s simply an exercise in cost-benefit analysis. Bottom line: If Syniverse can provide its services cheaper than Verizon can for itself, Syniverse will have its business
Value Added Research (VAR)
• Tom Brooks, Deloitte Technology Consultant
– Has over 30 years in the telecom industry and gave historical insight that may be extrapolated for the future
– TAKEAWAY: The US will not be dominated by a single wireless carrier, if only to prevent antitrust
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• Betsy Chapman, Telephia-Nielsen Mobile
– Discussed the market’s tendency to move towards consolidation
– TAKEAWAY: Yes, wireless companies are consolidating. However, new technology like WiMAX and VoIP are bringing new competitors like Clearwire. Also, the growth of iPhones and other smartphones is bringing other new companies into the market
How It Plays Out
• Syniverse will continue to expand its business on a global scale
through acquiring new contracts and acquiring new
companies and position itself as the intermediary to all
• Explosive growth of wireless technology in developing countries
such as those in Africa, Asia, and South America shows no sign
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such as those in Africa, Asia, and South America shows no sign
of slowing down
• In developed countries, smartphones will proliferate, resulting
in new types of value-added services such as watching TV on
your phone (already occurring in Japan)
• Syniverse reaps immense profits from this exponential increase
in transaction volume and transaction types
Risks
• The absolute worst case scenario for Syniverse would be if the
world ends up with a single wireless carrier that consolidates all
available technologies under one roof
• Even if this does not happen, rampant consolidation and/or in-
sourcing on a global level will greatly hinder Syniverse’s role in
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sourcing on a global level will greatly hinder Syniverse’s role in
the market
• Possibility of an unexpected drop-off in demand for
smartphones and/or wireless services in developing countries
Summary and Recommendation
Summary
SVR has a strong business model that has proved time and
time again. The nature of its contracts also promises a steady
inflow of cash. Furthermore, thanks to its global positioning,
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inflow of cash. Furthermore, thanks to its global positioning,
SVR is in the best possible position to capitalize on the global
expansion of communications technology.
Recommendation
MII should execute a buy-in with 5% of its capital.
McIntire Investment InstituteAt the University of Virginia
Long Pitch:
Syniverse Technologies
(NYSE:SVR)
M c I n t i r e I n v e s t m e n t I n s t i t u t e24
(NYSE:SVR)
Prepared by Hideyuki Liu, CFO | Jan 27, 2010