Tuesday, August 28, 2012

Facebook: From Headliner To Also-Ran

It's fairly well documented that the Facebook (FB) IPO opened to much fanfare with praise such as: "once-in-a-lifetime opportunity", "history in the making", and "it will make you money hand-over-fist". The masterminds on Wall Street priced it at $38, only to see it be cut in half a few months later to $19. I picked up a small piece of the action today for inclusion in my portfolio. This was not a spur-of-the moment decision.

Granted, the stock is in need of divine intervention to stop the slide, especially after the media firestorm of late. Out of all the bear articles I have read, Henry Blodget's piece was probably the most informative and well balanced. Both Mr. Blodget and ValueLine cautioned that until November 14th, more lock-up restrictions will expire with approximately 1.5 billion shares flooding the market. Things turned from bad to worse when board member Peter Thiel unloaded 72% of his remaining shares for a cool $400 million last week. Obviously the honeymoon period is over.

If we tabulate the earnings estimates, it's easy to see the stock is overvalued when compared to large cap technology companies like Apple (AAPL) and Google (GOOG). The average annual earnings estimate for 2012 is $.55/share. The high projection is $.76/share and the low is $.48. Just using the low estimate, we get a P/E ratio of 38. Apple and Google have P/E ratios in the mid teens. However, one thing that differentiates Facebook from Google and Apple is that it is a massive communications system. Sure, Google has Google+, but that is an upstart. Facebook is the proven leader.

Facebook is no longer a hot startup, but their 3-5 year growth projections of 27% indicates they still have a lot of mojo left. Where I think the anomaly is, and one of the reasons why the stock is under so much pressure, is the growth for the current year is only 14%. Going out to 2013, projected growth jumps back up to 28%. With anticipated earnings per share of $.63, you get a much more reasonably valued security with a P/E ratio of 30, which would give it a PEG ratio of one. Granted, this projects out 16 months, but analysts usually start utilizing next year valuations in the Fall.

One of the big knocks on Facebook is that they are primarily a desktop phenomenon, and can't monetize their mobile-phone application. That may be true for the last quarter, but in their first conference call, CEO Zuckerberg, put mobile as the company's number one priority:

As of the end of June, 543 million people were actively using our mobile services every month, each month. That's 67% more people than the 325 million who were using our mobile services just a year ago. We've also found that people who use our mobile services are more active Facebook users than people who only use our desktop services. On average, mobile users are around 20% more likely to use Facebook on any given day. So mobile not only gives us the potential to connect more people with our services, but it also gives us the ability to provide more value and a more deeply engaging experience.
The 543 million mobile users is hard scientific data. Facebook has the number one mobile app in the world. I think if you take the big picture point of view, you can see that there is tremendous opportunity for them in the mobile space.

How they go about doing it, is something that the CEO and his team are in the process of figuring out. They've done a terrific job of gaining digital dominance by building customer loyalty. My bet is that they will right the ship in regards to advertising on the mobile platform before the next conference call slated for the end of October. That's before the lockup period expires, which may stem the bleeding, if not propel the stock upwards.

However, I don't think they can do it alone. From doing extensive research in the mobile broadband arena, my preference is to see them team up with a digital-agency like Velti (VELT), or Millennial Media (MM). In 2010, Google bought Admob, and, Apple scooped up Quattro, which are both in mobile advertising. To the best of my knowledge, Quattro is only on the iOS platform, and Admob will have a difficult time in China because they are after all a Google company. Facebook is an international company with a mobile app that is platform agnostic. They require an advertising partner with similar credentials. Velti is the most globally positioned of all the mobile agencies.

Just going by Yahoo Finance analyst opinions, out of 22 brokers that cover the stock, $23 is the low twelve month target price, while $45 is the high target. Even if the equity rises to the $23 level by next August, that's a 25% gain. I'll take that in a choppy market, and that's the most negative outlook. I don't like to haggle over price too much. It's tough to pick a bottom. I believe that in a year from now, I'll be very happy with a $19 entry point. My investing style is to try and identify stocks that may double in two to three years. Facebook fits the bill.

This is when I like to buy recent IPOs, when they have sold off. It's one of the many teachings of Peter Lynch, one of the best value investors in the past 50 years. Nobody likes Facebook now. They bring a lot of baggage with them, but they still are the number one social Web site in the pixelated universe. Although Facebook needs a shot-in-the-arm, I believe it's coming sooner than later. Mr. Zuckerberg may not have the vice-grip control on the business he did two years ago, but he's the Chief Executive Officer - he writes the checks. It's up to Zuckerberg to make things right for a publicly traded company.

Friday, August 24, 2012

CEVA Fine Tunes Their Operation For 4G LTE

According to a recent presentation sponsored by Barclays Capital, CEVA (CEVA) is the world's leading licensor of DSP (digital signal processing) cores and platforms with a 90% market share. DSP essentially helps translate analog signals to digital and vise versa. Two other main engines in the cell phone are the CPU, brought to you by a company like ARM Holdings (ARMH), and the GPU for graphics processing, in which Nvidia (NVDA) excels.

The over-arching theme of my writings and stock selections since January 1st, has been in the wireless broadband sector. Anything to do with smartphones and tablets. My impression is that this a market worth cultivating, and in the next two to three years, may grant me a bigger paycheck. I'm primarily in small caps like CEVA to take advantage of the potential growth in a sector that is the driving force behind much of the technology expansion.

What I want to concentrate on is 4G LTE growth for CEVA. This is where the technology is going. Just look at all the television commercials we are being bombarded with by the likes of AT&T (T), Verizon (VZ) and Sprint (S). CFO Yaniv Arieli sheds some light on what could be a very profitable market, not just for CEVA, but their partners, too, at the Barclays Capital Conference:

"The next growth driver for us is the movement from 3G to LTE. Samsung, Broadcom (BRCM), Intel (INTC), Mindspeed (MSPD), all of these guys are using us not necessarily anymore for just cell phones. We have design wins in base station. We have design wins in smart grid. The volumes could be quite big in these markets, and if you look at the LTE subscribers today from 12 million anticipated to grow to north of 700 million over the next three years."

In addition, CEO Gideon Wertheizer discusses some impressive developments in 4G LTE in the latest conference call: "On 4G LTE, we continue to make progress in terms of customer attraction and design wins in this lucrative market. With the additional agreements we signed during the second quarter, we now have more than 20 LTE design wins with our DSPs.".

As semiconductors consolidate, CEVA is now moving into imaging, vision, audio and voice type of functionality. Battle lines are being drawn. This is because what was once a fragmented market is now solidifying, "...which is being driven by big OEMs vertically integrating and developing their own chips. This is evident in OEMs including Samsung, Apple (AAPL) and Huawei, integrating their own chips into their smartphone designs.".

The CEO goes on to say: "An example of this strategy coming to fruition is the strategic agreement we concluded during the second quarter with a Tier 1 OEM, who claims to use our DSP cores across a range of LTE products, ranging from mainstream LTE smartphone to next generation LTE advanced designs. For confidentiality reasons, we cannot elaborate more on this important deal at this time.".

When pressed further on this issue during the Q&A session by an analyst, CEVA's management didn't pin down an exact number of how many Tier 1 OEMs have licensed their LTE technology, but said it was in the range of two to three. This is great going forward, but LTE isn't expected to ramp up until late 2013, or the beginning of 2014. They need to pay the bills somehow, and that will be done via the already existing 2G and 3G initiatives.

Although in the most recent quarter, the 2G market experienced pricing pressure, CEVA's volume growth in the expanding 3G market during Q2 significantly outpaced that of the overall 3G space, as low and mid-range 3G smartphones gained traction, as paraphrased by Mr. Wertheizer. That's all well and good, but Wall Street didn't like CEVA's progress and the stock continued to trade near its 52 week low after the conference call. I took the opportunity to add to my holdings.

My median price for the equity is $19 (it currently sells for about $17). I originally bought CEVA at $22/share, and dollar cost averaged down at $15 when I liquidated my position in Sequans Communications (SQNS) two weeks ago. Both Sequans and CEVA are in the 4G LTE space, but Sequans has too many red flags for me to stick with it. With a much-needed cash infusion, and the thought of my assets being vanquished, I decided to part ways with the company. However, I will be monitoring it to possibly go back into it in 2013.

Although I like and own CEVA, a basic sticking point with the equity is that it appears to be overvalued if you look at the P/E and PEG Ratios. Sure, it's down almost 50% from its 52 week high, but the numbers don't lie. There's a lot of white noise in day-to-day investing with the barrage of information investors get from the numerous media outlets. I prefer to go year-to-year when doing evaluations, and according to Yahoo Finance, the measurables don't appear to be bargain basement.

Average analyst earnings estimates for 2012 are $.80/share. That's a P/E of 21. Extrapolating out to 2013, the average earnings go up about 13% to $.91/share. Next year's P/E calculates to 19. That's not a blue light special. If we examine revenues, sales for next year are only supposed to grow at 8.4%. Nothing to write home about.

So why would I want to be in a stock like CEVA? I like their prospects going out three to five years. I think I can double my money, if not more. Although reasonably valued, divinely ordained equities like Apple and Google (GOOG) have too big of a market cap to be included in my personal portfolio. Granted they have superior operating systems, but the law of probability, combined with the law of large numbers, may have caught up with these celebrity status stocks. Both companies are not quite long in the tooth, but not quite nimble enough to do anything more than double in the next couple of years.

Doubling your money is a terrific return for any investor, but I believe my best bet is to allocate my resources to their lesser known contemporaries. Stocks that may triple or more because of the success of Apple's iOS and Google's Android operating systems. It's a profitable arrangement for everybody betting on the sector.

With clients like Broadcom and Intel (INTC) licensing CEVA's technology, it is difficult to determine when the stock will get back in motion. However, with the upcoming release of the iPhone 5, all securities in the wireless sector may get goosed. I'd rather be early than late. My view is that investor psychology may play a big role in wireless broadband companies.

Friday, August 17, 2012

Velti: Baptism By Fire For A Young Company

Velti (VELT) is a young company in the nascent mobile advertising and marketing industry. Alexandros Moukas wears a lot of hats for the organization: Co-founder, CEO, Executive Director, and Chairman of the Executive Committee. I imagine taking a company from a bootstrap business to a publicly traded entity is a lot like parenting; no matter how much studying you do, there is nothing like on-the-job-training. Right now, Mr. Moukas is getting a real education in what it's like to be in the public eye of a backend loaded industry like Madison Avenue.

Traditionally, many advertising agencies and marketing departments allocate their yearly budgets in the late Fall, near the end of the calendar year when they know how much they have to spend for the next twelve months. As a result, Velti's earnings tend to be lopsided. Investors don't look long term in today's world. They're going quarter to quarter, which is why the stock price is under pressure. My impression is that if you are patient, you may very well earn a decent sum with this company. Full disclosure, I'm long the stock with my average price of $9/share.

Velti does more than smartphones. They are in the tablet market, too. In the next few years there may be six billion smartphones and tablets sold. That's a big universe. Smartphones and tablets are the heir apparent to feature phones, de facto communications tools, and you're going to need to send your marketing message to the end user somehow. Although Velti is on top of a very small hill, they are a globally positioned organization, and their platform can reach 4.3 billion consumers in more than 70 countries.

The stock has been in the limelight a few times in its short 18 month trading history, only to peter out and become persona non grata for a variety of reasons. In Q1 of this year, Velti sold off because Wall Street was concerned about receivables, or DSOs (Days Sales Outstanding), being too elongated. The Q2 DSOs were reduced from 272 days in the prior quarter, to 266 days. This area still needs improvement, but they are working on it by reducing a proportion of their business that comes from "legacy activities" in high-DSO areas. Velti is also executing internal process improvements to combat the problem.

Another reason why investors may have kept the stock at arm's length is the negative perception of mobile advertising by financial television pundits. I've heard from more than one larger-than-life commentator on CNBC that the ads on mobile devices are too small to click, unlike their older sibling, the browser banner advertisement. I disagree with this theory. By the sheer volume of smartphones and tablets being bought, you are going to get people engaging with the advertisements.

Looking at some of the finer points of Velti's Q2 conference call, my take is that individuals may be clicking on theses mini banner ads. Revenues for the quarter were $58.7 million, growth of 71%, compared with Q2 2011. Full year guidance for 2012 sales is $285 on the low side, and the high end is $296 million. Somebody is connecting with the advertisements.

Here are some of the takeaways from the analyst presentation as paraphrased by CEO Moukas:

  • Velti experienced 126% year-over-year growth in Americas, primarily the U.S. market, in Q2. They continue to believe that revenue from the U.S. will double this year, making the U.S. their largest country by far.
  • SaaS (software as a service) revenue for the second quarter of 2012 was $48.9 million, an increase of 78% compared with $27.6 million in the second quarter of 2011.
  • Despite global macroeconomic weakness, the secular growth story of the mobile channels continue to trump the cyclical market concerns. They managed to grow their business in Europe by 30% year-over-year. It's somewhat hard to say what would that growth had been if Europe was growing by 2% or 3% a year. It would probably have been more but it's actually very hard to quantify.
  • During the quarter, they signed new agreements with Disney (DIS) and Nestea. In addition they also signed incremental agreements with Toyota (TM) and Calvin Klein.
  • Another major achievement in the second quarter was their completion of integrations of Air2Web and MIG. MIG continues to dominate Western Europe in high-growth areas, such as real-time mobile and social interactions, as well as mobile to TV interaction.
  • The competitive landscape is quite fragmented, both in terms of services and geographies. Velti's customers seek great value in having one provider that can address the full gamut of mobile services rather than having to piece together multiple solutions to address their requirements.
Wall Street liked the numbers for the quarter, and investors boosted the stock price right after the analyst presentation. However, in my mind, it wasn't enough. Velti needs some sort of propulsion system to get the stock going again, and the accelerant may be a return to positive earnings.

If we examine Yahoo Finance average analyst estimates, Velti is projected to earn $.73/share for 2012. At its current price of roughly $7.20, that gives us a P/E ratio of 10. It's also projected to grow 34% a year the next half decade. This extrapolation includes 46% for this year, and 32% for 2013. Sure, if you are investing for the current quarter, earnings were nil. Q3 is projected to be a measly $.04/share, but if we go three months further to Q4, the bottom line jumps to $.72/share. This is not an optical illusion. Velti is like a powder keg with a four month fuse.

Traders may like the stock because of its volatility, and the fact that they can flip the stock for an instant payoff in January if indeed they do have a blowout fourth quarter. I like their prospects for the next five years, so I'm hanging onto my shares unless they get bid up to biblical proportions. I'm a firm believer that the mobile sector is going to become overvalued in the next few years, much the same way that cloud computing stocks became inflated right after the market meltdown in 2008/2009.

I think the Disney win is huge because they are a leading edge technology company which includes the ESPN family of networks. A big presence in the United States is also in their favor because this is where the majority of multinational corporations reside. If you are interested in doing business with Velti, or want to know more about their company, check out the Velti 2012 White Paper, prepared and presented by newly acquired MIG. Without bogging you down, it gives you loads of information on mobile marketing and advertising, plus some case studies of their clients.

Monday, August 13, 2012

Fusion-io Launches A Moon Shot

Investors liked what they heard in last week's Fusion-io (FIO) conference call. As a percentage gain, Fusion-io's revenues registered high on the Richter scale, coming in for fiscal 2012 at $359 million, an increase of 82% over fiscal 2011. Although the company reported a loss of $.06/share for the year (they earned $.06/share the year prior), that didn't seem to bother traders. Hot on the heels of the analyst presentation, Wall Street bid the stock up $5.84, or 28%, to $26.85 in a single day of trading.

Fusion-io has a, "pioneering next generation storage memory platform for data decentralization", according to their latest annual report. Many in the financial press concur with their self assessment. Just last year they were crowned a Red Herring Top 100 Global Company. If this is indeed "disruptive" technology, and they are trailblazing their way through the Fortune 500, the question remains: at what price do you want to pay for this security?

Before I get into valuations and macro market conditions, let's try to dig into their business a little deeper. It goes without saying, there is an enormous amount of data out there, and end-users want it faster than ever. Facebook (FB), Twitter, you name it, they want it five seconds before now. Semiconductors have kept up with the pace of speed and innovation, but other areas of technology have lagged.

The Fusion-io annual report exemplifies the dilemma: "While processing performance has doubled approximately every 18 months, the performance of other elements in the data supply chain has not kept pace. This is especially true for the storage infrastructure, which has been designed primarily to optimize capacity growth, rather than performance growth.".

Fusion-io believes they have the answer to the data supply problem: "Many users of our platform have reported achieving greater than 10 times the application throughput per server through increased server utilization, resulting in reductions to ongoing facility, energy and cooling expenses.".

Proof positive that they making big strides in corporate data centers is their partnerships with an impressive list of OEMs: Hewlett-Packard (HPQ), IBM (IBM), Dell (DELL), Supermicro (SMCI), and a new relationship with Cisco (CSCO) all bode well for future enterprise sales for such a small company. For example, HP offers a tailored version of their technology as "HP StorageWorks IO Accelerator". Similarly, IBM incorporates a tailored version of Fusion's ioDrive product into its "InfoSphere Smart Analytics System 5600" and "WebSphere XC10 Middleware" appliances.

They now sell and support products in 59 countries around the globe. Fusion-io's customer count has more than doubled from the 1,500 they had when they went public a year ago. Now they have approximately 3,500 customers with over 50% of the Fortune 100 as clients.

In addition, the company also has a new partnership with NetApp (NTAP). It is their first partnership with a storage vendor, and will allow them to compete with Oracle's (ORCL) Exadata, and EMC's (EMC) VFCache. Those are the only two flash solutions that are in the market they bump shoulders with in the enterprise space. This is their primary market and represents the majority of Fusion-io's business.

At first glance, this sounds like they are making great headway, and they are, but the client base is a bit lopsided. CFO Dennis Wolf explains: "We had 3 customers that exceeded 10% of revenue this quarter: Apple (AAPL), Facebook and HP. In aggregate, the 3 represented 72% of revenue. Revenue from Facebook and Apple represented approximately 53% of total revenue in the fiscal fourth quarter compared to 55% in the prior quarter, and 65% in the quarter ended June 2011.".

Turning to fiscal year 2013, they expect revenue growth to be in the range of 45% to 50% over fiscal 2012 which just ended. That's impressive, but quite a bit lower than the approximately 85% sales growth from 2011 to 2012. You can't expect growth to continue at such a fast clip, even for a small company, but should be taken into consideration when examining Fusion-io's potential as an investment. If one of those three big clients comes up short on the top line, Fusion-io may get crushed. I'm not as concerned about Apple and HP as I am with Facebook. Because the company expects sales to to "modestly increase" in the next quarter after a strong Q4, I believe that this stock may come down in the next few months.

Here are additional reasons why I think the price may decline:

  • First, the S&P 500 has gone from 1280 to 1400 in the past ten weeks, and may be due for a pullback, taking a majority of stocks with it.
  • Secondly, companies are belt tightening on enterprise IT spending not only in Europe, but in North America, too, which could put a crimp on sales.
  • Thirdly, August, September and October can be slow months for the market.
  • Fourth, although non-GAAP earnings per share were $.35 for fiscal 2012, they are still not making money when using generally accepted accounting principles. Even with a non-GAAP valuation, you get a trailing twelve month P/E Ratio of 73.
  • Finally, investors are being defensive before the Presidential election in November, and may jettison positions in risky assets until the results are in.
For those in the investing world, Fusion-io is not an unfamiliar name. Chief Scientist Steve Wozniak put the company on the map by pedigree alone. Throw in the "revolutionary" technology, and you've got a story to stop the presses. However, during its first year of trading, it's been as low as $15, and went to the upper reaches of the charts at $40 back in December. Q4 was great, but some of the uptake in sales was due to seasonality, where the compensation is "potentially the greatest for the sales organization", according to the conference call.

Over the next few years, a stock like this could make you money. I'd like to add it to my portfolio, but not at the current price. I'm going to wait and see what their next quarter brings.

Friday, August 10, 2012

On-The-Fly And On The Sly Gaming With Glu Mobile

The big hot button issues with mobile gaming company Glu Mobile (GLUU) is that they are currently unprofitable, and the stock is expensive at $4.85/share. That may be true in the dog days of Summer 2012, but Christmas season is fast approaching, and that is when the company can increase sales. This is because a majority of Glu's user base are male millennials who have not yet cut the umbilical chord. They are dependent on their parents for holiday gifts such as smartphones and tablets, as well as spending money to take advantage of all the accouterments a Glu game has to offer.

Glu Mobile is one of the few, if not the only publicly traded pure play in a boom industry - content creation for the ever expanding smartphone and tablet markets. Glu's tried and true premium smartphone strategy is paying off. Since the company recycled itself with a turnaround plan in January 2010, they have increased smartphone game sales to 85% of revenues in the latest quarter. Their signature style psychotronic titles like Gears & Guts, Mutant Roadkill, Frontline Commando, and Blood & Glory are very popular with young males.

During the Q2 Conference Call, Glu's top dog and rainmaker Niccolo de Massi trumpeted their upcoming launches, must-have titles for disenfranchised youth. CEO de Massi points out that the current one billion smartphones and tablets already sold are slated to grow to six billion in the near future. His team should be able to distribute a multitude of games just on sheer industry volume. Although many of these six billion mobile users will be playing Glu's games on-the-fly, my impression is that Glu's overall business strategy is on the sly. This is because they will be slowly working their way into your living room with the advent of Smart TV's.

The progression of mobile technology for gaming applications is as such: feature phones to smartphones to tablets, and eventually, to televisions like Apple's (AAPL) upcoming launch. Smart TV's will allow you to take all of your mobile applications to a larger screen. To the best of my knowledge, this is Apple's plan, and other television manufacturers will probably follow suit if history is any indication. If indeed Glu does begin to penetrate the home, it also means they will be going head to head with industry stalwarts such as Electronic Arts (EA) and Activision Blizzard (ATVI).

Recently, Glu took a big step in increasing their competitive edge in not only mobile, but the potentially lucrative home market by acquiring GameSpy Technology from IGN Entertainment, a division of News Corp. (NWS). In 2004, when IGN Entertainment bought GameSpy, it sold for $55 million. With incredible cash-management skills, Glu Mobile scooped it up for 600,000 shares of stock, worth about $2.8 million, according to Steven Brown of the San Francisco Business Times.

My opinion is that this is a big move for the company. It gives Glu Mobile the option for multiplayer and social functionality in a number of their titles, not just Glu's Gun Bros which currently integrates its features on Android (GOOG). The company press release states that what the IGN Entertainment technology does is facilitate: " multiplayer matchmaking, player statistics, individual player profiles, in-game buddy lists, leaderboards, and storage of game media, including screenshots, gameplay videos, and playable content.".

This is what gamers want, the competitive social interaction that was previously offered on more established legacy gaming systems like X-Box (MSFT), or on Zynga's (ZNGA) platform. I also believe it opens the door for Glu Mobile for motion sensor gaming if indeed they do invade your living room like I am speculating. A partner like Majesco Entertainment (COOL) may be a great fit if the management at Glu is going in that direction. However, this is peering around the corner, what really matters to investors are the numbers.

Let's examine the negative perceptions of the company through the eyes of Wall Street, which are that the company is expensive, and that they are unprofitable. According to the seven analysts that follow the company as reported on Yahoo Finance, Glu Mobile will indeed be profitable next year, but there is a wide discrepancy on the earnings estimates for 2013. The average earnings estimate for next year is $.16/share, with the low being only $.05/share, and the high a whopping $.28/share. Someone may need to recalibrate the numbers, but my bet is that it's going to be the analyst who low balled the projection.

To give us a ballpark figure for a forward P/E Ratio, I'm going to use the average of $.16/share. That would calculate to a P/E of 30 for next year. If you are in the bullish camp, and use the highest estimate of $.28/share, you get a forward P/E Ratio of 17. However, it is important to remember that these prognostications go out 16 months. At its current price, it may be a bit overpriced, and with a Beta of 2.12, it trades in a fairly wide range. Patient investors have a high probability of purchasing Glu at a reduced rate if the market corrects again.

On the growth rate, because earnings are going from negative to positive, it's tough to get a bottom line approximation for the near term. However, over a five year period, Wall Street expects it to be 30% on average. Sales are also expected to grow at a plus 30% clip from this year to next. Being a small company in a sky's-the-limit market, they may very well reach their five year earnings expectations just from the magnatude of smartphone penetration.

For full disclosure, I am long Glu Mobile in my personal portfolio, but also use it as a trade. I recently sold half my stake near the 52 week high of $5.90, then reestablished a larger position around $4.40 in the aftermath of the Q2 Conference Call. Utter coincidence. Dumb luck. Whatever you want to call it. I just thought it was overvalued near $6, and took some profits. I added to my position because I like the intangibles with this company, and $4.40 seemed like a reasonable price.

Tuesday, August 7, 2012

Synchronoss Technologies Expands Their European Footprint

Synchronoss Technologies (SNCR) is primarily recognized for doing the behind the scenes processing for the iOS (AAPL) and Android (GOOG) operating systems on the AT&T (T) network. Earlier this year, they began conducting more business with Verizon (VZ), and across the Atlantic, they have an expanding relationship with Vodafone (VOD). Also in Europe, the ink is barely dry on a recent agreement with Telefonica (TEF) of Spain. Things are happening in a big way for the company.

Their bread and butter is the workmanlike synchronization of contact information, otherwise known as the network address book, when you upgrade your smartphone or go from feature phone to smartphone. Among other services, they also sync the e-mail on your smartphone to your desktop computer. For more detailed information about the Synchronoss business model, refer to a previous article of mine.

The company has been a beneficiary of the boom in smartphone adoption, but they're not stopping there. Now that we are being inundated with tablets, and soon to be connected Smart TVs, automobiles, cameras and home automation systems, Synchronoss has the made-to-order technology to hit the big time. This new technology is a cloud initiative that enables the end-user to backup, restore, upload/download videos or pictures, as well as synchronize over the airwaves on all of your wireless devices.

In the United States, the cloud buildup sounds exciting if you are one of the many smartphone owners who will utilize the service, but you can only get so much growth from a saturated market for investment purposes. Granted, the soon to be released iPhone 5 should boost domestic revenues and earnings for Synchronoss in the near term, but it's the international expansion that may give the company double digit earnings for the next five years.

First, let's look at the Synchronoss relationship with Vodafone. Vodafone has a 45% stake in Synchronoss' partner Verizon Wireless, which should be a boost to both companies' top and bottom lines in North America. However, I'm more interested in the European potential. Vodafone has 379 million subscribers in 26 countries, and their business in the United States is just scratching surface of what could be a bumper crop of sales for Synchronoss, if indeed they are fed a steady diet of new subscribers.

For two years now, Synchronoss Technologies has been working with Vodafone in Germany in the Business-to-Business Enterprise space. From what I can decipher from CEO Stephen Waldis in the Q2 conference call, this is going to be expanded to three additional countries going forward. Here is what CEO Waldis has to say in the conference call: "...to the Vodafone opportunity, this is a direct result of the good work that we've been doing out of our work in Germany for B2B Enterprise. And because of that, there's going to be a move into additional countries. And right now we're going to target 3 initial countries to take the platform and deploy it out.".

Telefonica is another potentially lucrative partner for Synchronoss. Although headquartered in Madrid, they only do 10% of their business in Spain. Of their 200,000 worldwide subscriber base, only 20,000 are located in the mother country. In fact, 47% of their business is in the fertile Latin America market. An additional 25% is with other European countries. The initial contract with Telefonica calls for cloud deployment in Spain only, but CEO Waldis, feels this is a stepping stone to a much bigger piece of the pie.

Because of confidentiality agreements, Waldis could not give specific details as to what lies ahead for sales projections for both European carriers. However, we are looking at a combined subscriber base of almost 600,000 for Vodafone and Telefonica. This is above and beyond the subscribers Synchronoss is already working with domestically with AT&T and Verizon. If the cloud initiatives pan out, and all of these carriers utilize the Synchronoss service, we are looking at potentially over 800,000 end users.

Although Synchronoss succeeded in spades with their jaw dropping technology with the AT&T network, they still have a long way to go with their cloud strategy to take advantage of the golden opportunity in Europe. However, even the layman knows that cloud computing is cost-effective and labor saving, which is why information technology departments are pulling the plug on their legacy systems. It's a question of when, not if. The CEO believes that early 2013 may be a launchpad year for the cloud initiative, especially with Verizon.

The telltale sign for future growth may be not so much as to what Synchronoss is doing in the cloud, but what consumer behavior dictates. That consumer behavior is the want and need to manage the multiple wireless devices in our homes. This where shared data plans come into play. It is the end-user that is requesting a need for heterogeneous services that may be the crowning moment for the company, instead of our current homogeneous content management solutions. An example of a homogeneous cloud solution is Apple's iCloud, which is a vertical approach.

According to Mr. Waldis: "Where the carrier feels they can be successful, and where we can enable that is really creating a horizontal view... when a household has 8 to 10 devices, and you can look amongst your own consumers, there's multiple devices there. There's not just iPads and iPhones, but there's Windows (MSFT) phones, there's Android phones. And ultimately, where the carriers are making big pushes is also in the digital home.".

In other words, instead of being tethered to one operating system, or multiple data plans for a variety of gizmos, you can sync up everything in your personal digital life as long as you subscribe to just one specific carrier.

Mr. Waldis goes on to talk about how he sizes up the business prospects for Synchronoss: "It's all adding up to a lot of carriers looking to see who can do the scale that we can do. And one of the biggest factors that we talk about, and specifically around these releases (of new wireless products), it's not just with Verizon, it's with all our customers, to run things to scale over millions of millions of devices is not an easy task. Outside of maybe the iCloud, I believe we've got one of the largest implementations in the world managing the cloud.".

That gives you the conference call in a nutshell. The day after the presentation, investors jumped at the chance to get a piece of the action, and bid the stock up 19%, from $18/share to $22. Let's examine the numbers supplied by Yahoo Finance, and see what you think.

Consensus analyst earnings estimates for 2012 is $1.09/share. This gives us a current fiscal year P/E Ratio of 20. This is expensive for a company that is slated to grow only 11% this year. However, it's always about future prospects. The year 2013 is a different story. Consensus earnings estimates for next year are $1.31/share. Out of the 13 analysts that cover the company, $1.44 is the high estimate, and $1.23 is the low. Projected five year growth is 18% which would give us a 2013 PEG ratio of a little under one. Not too expensive for a growth stock if you use that metric.

If you are believer in the wireless broadband revolution, and are seeking a solid infrastructure play for smartphones and tablets, look no further. Synchronoss Technologies may be a great addition to your portfolio for a five year ride.