Smith-Micro

I took a position in Smith-Micro after their quarter was announced Wednesday. This is probably the third (or fourth?) time I have owned the stock.

This is not a perfect situation to buy but I decided the positives outweighed the negatives.

The negative – a big one – is that revenue is not going the right direction. In particular, Safe & Found revenue is dropping. Their expected quarterly (!!) churn on Safe & Found in the fourth quarter is 7-12%, which is not good. There are some mitigating factors here, like the merger of T-Mobile and Sprint which is probably uprooting their customer base, but still.

So why did I decide to buy the stock? Because when I read through the transcript, it sure sounds like multiple new customers are very likely in the next couple of months. They talk about “multiple opportunities”, how they have added features “that are required for new accounts”, how they will need all their new people (70 hires) for new deployments in the first and second quarter, and he did not disagree to the comment “you’ve talked pretty confidently about at least a couple in the next 30 days, perhaps a third one by year end.”

It just seems that this is one of the few stocks that has not moved post-COVID and so 2 or more announcements of new customers in the next couple of months could be fair catalysts. If they don’t happen or if the response is muted, then I should be able to exit the stock before we get any more data points on those scary churn numbers.