180 Degree Capital Corp., an investment management firm, recently released its fourth quarter 2023 investor letter. A copy of the same can be downloaded here. This recession has caused investors to move their capital away from risky assets to safer ones. Despite predictions of a return to higher interest rates, the economy has not suffered any major setbacks. Instead, GDP has risen by 3.1%, wages and salaries have grown by 4.7%, real private fixed investment in manufacturing structures has reached record highs, and employment rates remain strong. In the fourth quarter of 2023, there was a positive change in the market as it believes that investors will start to take more risks, including investing in microcapitalization stocks. The Fund’s public portfolio had a gross total return of +6.9%, which was the main reason for the increase in NAV per share from $4.91 to $5.02. For more information on the fund’s top picks in 2023, please check its top five holdings.
180 Degree Capital Corp. featured stocks like Synchronoss Technologies, Inc. (NASDAQ:SNCR) in the fourth quarter 2023 investor letter. Based in Bridgewater, New Jersey, Synchronoss Technologies, Inc. (NASDAQ:SNCR) offers cloud, messaging, digital, and network management solutions. On March 5, 2024, Synchronoss Technologies, Inc. (NASDAQ:SNCR) stock closed at $9.25 per share. One-month return of Synchronoss Technologies, Inc. (NASDAQ:SNCR) was 51.89%, and its shares gained 23.83% of their value over the last 52 weeks. Synchronoss Technologies, Inc. (NASDAQ:SNCR) has a market capitalization of $95.93 million.
180 Degree Capital Corp stated the following regarding Synchronoss Technologies, Inc. (NASDAQ:SNCR) in its fourth quarter 2023 investor letter:
“Synchronoss Technologies, Inc. (NASDAQ:SNCR) provides white-label technology that enables large corporations to offer customers cloud-based storage of personal data. SNCR’s platform powers the personal cloud offerings of a number of Tier 1 companies including Verizon, SoftBank, AT&T, Assurant, British Telecom and Tracfone under long term contracts. We first invested in SNCR as part of an underwritten financing in June of 2021 that allowed SNCR to pay off its punitive preferred stock and recapitalize the company with reduced interest expense, while also providing flexibility going forward to execute on strategic options for the business. The first of these strategic alternatives was completed in Q4 2023 with the sale of SNCR’s non-core messaging and digital businesses. SNCR is now a pure-play, cloud-focused business with high margins and is on the cusp of generating significant free cash flows.
Our bullish view for 2024 is centered around a number of catalysts that we believe will improve SNCR’s balance sheet and demonstrate the operating leverage of the business. First, SNCR has stated that it expects to receive approximately $28 million from a tax refund at some point in 2024. This inflow of capital will allow SNCR to pay down a portion of its relatively expensive outstanding preferred stock and/or debt that matures in June 2026. Second, SNCR is expecting to return to top-line revenue growth after the runoff of historical deferred revenue and continued growth in subscribers at its largest customer, Verizon, and its newest customer, Softbank. Third, the end of non-recurring charges related to restructuring and prior litigation and corresponding settlements coupled with revenue growth and a material reduction in interest paid on its outstanding debt should lead to material free cash flow generation in 2024 that we believe could grow substantially in 2025. Lastly, we should note that in December 2023 we were asked to join SNCR’s Board of Directors to help with the company’s execution of its next phase of growth.
As we look at what this might mean for the stock price of SNCR, it ended 2023 at $6.21, which equated to a multiple of enterprise value to estimated 2024 EBITDA of approximately 5.6x. This multiple declines to approximately 5.2x if SNCR receives the tax refund and uses it primarily to pay down debt. We do not believe a cloud-focused business with 85-90% recurring revenue, 70-75% gross margins, 25%+ EBITDA margins that also generates positive free cash flow should command such a low multiple. In our opinion, a more appropriate multiple would be in the double digits. SNCR recently reported the completion of significant cost savings initiatives along with strong performance in Q4 2023 and the stock responded positively. We believe this is just the start for SNCR and that 2024 will be a turning point for SNCR both in terms of its business and how investors value SNCR’s common stock.”
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Synchronoss Technologies, Inc. (NASDAQ:SNCR) is not on our list of 30 Most Popular Stocks Among Hedge Funds. At the end of the fourth quarter, Synchronoss Technologies, Inc. (NASDAQ:SNCR) was held by 3 hedge fund portfolios, down from 6 in the previous quarter, according to our database.
We discussed Synchronoss Technologies, Inc. (NASDAQ:SNCR) in another article and shared 180 Degree Capital Corp’s views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
