Yet Another Controversy for Ubiquiti?
CNBC Senior Stocks Commentator
Just when you thought a bizarre story couldn’t get any more bizarre: Ubiquiti Networks CEO Robert Pera has agreed to buy the Memphis Grizzlies basketball team for $350 million.
Because about the last thing you would think Pera, 34, needs to add to his title right now is basketball owner.
Little-known (certainly from a buzz standpoint) Ubiquiti has been one of Silicon Valley’s fastest growing companies, with a model so unusual (a hardware company with software company-like net margins) that it recently attracted high-profile and widely respected venture capitalist Bill Gurley of Benchmark Capital as a personal investor and director.
But as I pointed out in a piece last week headlined, “Why Ubiquiti Networks Is So Controversial," the company is also one of Wall Street’s hottest battleground stocks. As of May 15, 54 percent of its float were sold short, with the bears raising red flags over a myriad of issues, including earnings quality. (See clarification)
Pera founded Ubiquiti in 2003, but it wasn’t really actively operating until 2005 selling wireless internet products, mostly to emerging markets.
Last year revenue topped $197 million, more than tripled two years earlier, based on a stripped down model of selling online through distributors, mostly in emerging markets, with only 18 percent of the sales in the U.S.
But like all high-flyers, Ubiquiti’s growth has been slowing, while its stock has plunged.
After going public at $15 in October, Ubiquiti’s shares had more than doubled to peak at $35.99 by May, giving Pera’s stake a $2 billion value in the company, which at the time had a market value of more than $3 billion.
While he still may be a good catch on the dating market, he is no longer a billionaire.
In the easy come, easy go world of paper stock market profits, Pera’s net worth based on Ubiquiti’s stock price has tumbled to $683 million as its stock has crashed through its IPO price to yesterday’s close of around $12. The stock fell on concerns of slowing growth and the swirling controversies.
Which raises a couple of questions:
1. Where is Pera getting the money buy the basketball team? I couldn’t get a hold of Pera or other Ubiquiti networking executives yesterday (nobody returned my call and the company’s switchboard went to voicemail) but so far he hasn’t filed to sell any of his existing shares; and there are no filings to suggest that he has pledged his shares as collateral for a loan. However, in 2010 he did receive $84 million as part of a recapitalization with the venture capital firm Summitt Partners; it’s unclear whether it was a pass-through transaction or whether it was cash in Pera’s bank. Just prior to the recap he reduced his salary to $1 a year.
2. What’s Pera doing buying a basketball team when his company (like any company at this stage) would appear to require more than 100 percent of his time? If nothing else it just doesn't look good. When I spoke to Pera last week (he called after my story ran) he was highly confident of the company’s growth potential —and showed little concern about the perceived challenges.
But in the world of technology, this much is clear: The hottest and most disruptive companies can be disrupted. Even without a any controversy, buying a basketball team isn’t what investors generally want to see from freshly minted billionaire (or even hundred-millionaire) CEOs of young, growing companies.
Unlike Mark Cuban, who bought the Dallas Mavericks after selling his company to Yahoo for $5.9 billion, Pera, whose total compensation last year was $26,000, still works for a living.
For investors in Ubiquiti, Pera’s purchase of a basketball team is one step removed from slapping Ubiquiti’s name on a basketball arena.
Which gets to my memo to Pera: Leave the living large until after you have the cash in hand and your company is well on its way.
Clarification: This story has been updated to clarify that shares sold short are a percentage of the company’s float, not shares outstanding. Also, comments have been added to the discussion about the CEO’s source of cash.
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