UCL: A Reopening Play Based on Staying Connected Worldwide

By Lisa Thompson

NASDAQ:UCL

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We believe uCloudlink (NASDAQ:UCL) should be viewed as a reopening play since before borders were shut, almost half of its revenues came from international data services, which were decimated as travel ceased. Before the pandemic, researchers believed it had 41% of the mobile data market for Chinese travelers going abroad and it sells its products and services in over 140 countries and regions across six continents. Once travel returns we believe that business will also return, propelling it back to high growth. Even without, the company has made progress expanding distribution and relationships with carriers, MVNOs and consumers. uCloudlink considers itself a marketplace that provides mobile data to businesses and consumers worldwide. It generates revenues from the sale of data connectivity services provided by mobile operators (52% of revenues) with the remainder from selling associated hardware–primarily mobile hotspots. 12% of its services revenue comes from its B2B SaaS offerings. Over half of its revenues now come from Japan for service within the country. It continues to expand business opportunities globally such as the United States, Europe and Asia, etc.

For international travelers uCloudlink provides a competitive and easy solution to connecting in a different country. Rather than buying SIM cards or paying expensive prices to a home carrier to roam internationally, uCloudlink provides a low cost cloud based solution. UCL international data connectivity services revenues were mostly devastated in 2020 due the shut down of international travel. The demand of UCL local data connectivity services kept steady. During that time the company pursued its local mobile business particularly in Japan. Once the international traveler returns, revenue from that side of the business should come roaring back.

While businesses and consumers can get data service from a fixed broadband provider or their phone carrier, their coverage and/or contract terms may not be as good or reliable that provided by uCloudlink. Customers can buy service directly from uCloudlink that lets them stay connected wherever they go and mobile providers can white label and resell, or just use uCloudlink’s capabilities in lieu of roaming agreements with other carriers in order to improve their service coverage and quality and reduce churn.

uCloudlink has given guidance that it expects to reach between $107 million and $130 million in revenues which would be growth between 20 and 45% if international travel will be effectively recovered compared with Pre Covid-19 pandemic in 2019. The company expects to grow in Japan, the United States, China, South East Asia, etc. For example, in the US market, the company optimized websites to enhance its GlocalMe brand e-commerce efforts as a part of our global expansion strategy. It also hopes to capture additional business with MNOs seeking to improve network coverage and elevating user experience. Other opportunities include network management for remote working and education and new 5G applications. Its technology, which reduces network crossing time to milliseconds, is particularly needed in 5G and edge computing including Internet of vehicles, autonomous driving, AR and VR, and cargos and logistics. It is uniquely positioned for applications that cross borders.

It trades at an enterprise value to 2021 estimated sales of 2.8xs versus comparable companies that trade at 14.6 times. When the company returns to year over year growth we believe this valuation differential could dissipate.

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