Shares of Tucows (Tucows Stock Quote, Chart, News: TSX:TC, Nasdaq:TCX) have more than bucked the overall downward market trend in 2015, but Cantor Fitzgerald Canada analyst Scott Fitzgerald thinks the company still has upside.
Last Thursday, Tucows reported its Q3, 2015 results. The company earned (U.S.) $3.15-million on revenue of $44.55-million, a topline that was up 14.5% over the same period a year prior.
“Continuing solid performance from our domains business and increasing contribution from Ting Mobile resulted in a record quarter for both revenue and adjusted EBITDA,” said CEO Elliot Noss. “The operating leverage in our business model contributed to 43 per cent year-over-year growth in adjusted EBITDA for the quarter to a record $7-million, bringing our total for the first nine months of the year to $19.3-million, representing 68-per-cent growth from the same period last year and well above our total for all of 2014.”
Curtis notes that the quarter was in-line with his expecations. The analyst says the company’s move to diversify its business in 2012 by launching wireless service provider Ting, is on more than solid footing.
“Ting Mobile business now contributes over 37% of consolidated sales (versus 25% last year),” points out the analyst. “Tucow’s domain business continues to deliver stable cash flow to support business development of its gigabit fiber initiative (Ting Internet).”
In a research update to clients today, Curtis maintained his “Buy” recommendation and (U.S.) $36.00 (C$45.00) one-year target price on Tucows, implying a return of 31% at the time of publication.
One thought on “Tucows still has upside, says Cantor Fitzgerald Canada”
As a long-term investor since 2007, who has watched TCX increase 800% in value since Tucows rolled out Ting Mobile in 2012, I agree with Cantor Fitzgerald’s assessment of Tucows’ Q3 2015 performance. Although it would have been good to see 10,000 to 12,000 net adds this quarter, as Noss indicated, Ting Mobile is still recovering from the FED problems with Sprint earlier this year and is starting to regain momentum.
One big takeaway from Noss’s comments is that Gross Adds have remained steady at just under 20,000 over the past five quarters. The problem is that while the 2.5% churn rate has remained relatively constant, cancellations in absolute numbers have increased as a function of the greater population of customers under contract. Every cancellation costs revenue but also $100 to replace that customer which last quarter cost the company $1.8 million. I think Ting Mobile needs to concentrate on bringing their churn rate back down to 2% and perhaps they should try to steer potential customers away from their GSM phones, even offering incentives to go with Sprint, if GSM’s transient customer base is a major factor driving the higher churn rates.
I was very pleased with the progress with Ting Internet’s three municipal customers and the fact that gross margins are much higher and it is a much stickier service than Ting Mobile. I look forward to seeing Ting Internet start to provide a significant contribution to Tucows bottom line in 2016. I totally agree with Noss’ careful “get rich slowly” approach to entering two or three new markets in Google Fiber’s Halo over the next year.
Overall a good quarter. Tucows is executing to plan and I think over the next year Tucows stockholders will be handsomely rewarded for their confidence in Tucows management. Tucows certainly has conviction in their own vision as demonstrated by the company buybacks of almost 400,000 shares of stock last quarter at an average price of $22.76 per share.
For an analysis of Tucows strategy and a model of Ting Mobile profitability, go to:
Congratulations and Best Regards,
BTW, I don’t think it should be “Cantor Fitzgerald Canada analyst Scott Fitzgerald thinks the company still has upside.” That’s a different book.
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