NEW YORK, Sept. 09, 2022 (GLOBE NEWSWIRE) -- Diamond Equity Research, a leading equity research firm with a focus on small capitalization public companies has released an update note on uCloudlink Group Inc. (NASDAQ: UCL). The update note includes information on the Group Inc.’s financial uCloudlink results, management commentary, recent developments, outlook, risks, and our revised valuation estimates.
The update note is available here. Highlights from the note include:
UCL Beats on Second Quarter Revenue with Improved Margin Profile and Profitability – uCloudlink recently announced its financial results for Q2 2022, with total revenues of $18.0 million, down 6.3% year over year, beating by $0.9 million. Though sales of products declined to $6.8 million due to the decrease in sales of data-related products and others, revenue from services increased by 20.7% YoY to $11.2 million, as revenues from international and local data connectivity services grew which is aided by the gradual recovery of international travel and the continuous development of the company’s local data connectivity business. In terms of geographic distribution, Japan where most revenue is derived contributed 38.1% of total revenues, while mainland China and other countries contributed 1.4% and the remaining 60.5%, respectively. UCL’s overall gross margin was approximately 44.1% compared to 28.1% in the same period last year, reaching record highs since FY2020, as international data connectivity service generated more revenue with a higher gross margin. The improvement in gross margin profile was also due to algorithm optimization and more efficient data usage, product hardware and design upgrades, as well as an increased proportion of revenue from high-end products including 5G-related products. The company expects the gross margin to remain at such level and improve further in the coming quarters with revenues from international data connectivity services continuing to increase given that international travel is gradually resuming. UCL’s operating expenses decreased from $12.9 million to $8.3 million as the company streamlined its cost structure, leading to a narrowed net loss of $1.5 million, or $0.22 per basic and diluted ADS in Q2 2022, which is in line with our model. We expect UCL could be profitable by 2023, as the company generates more revenue from the resuming international data connectivity business and brings more 5G products to market, while optimizing its gross margins and operating efficiency.
Positive Operating Cash Flow Indicating Financial Sustainability – As of June 30, 2022, uCloudlink’s cash and cash equivalents and short-term deposits were $12.2 million, compared to $11.2 million as of March 31, 2022. The company achieved a positive operating cash flow for the first time since Q2 2020 during the COVID-19 pandemic, demonstrating UCL’s ability to achieve financial sustainability to support its long-term operations and growth.
• Valuation – UCL’s beating on revenue strengthens investors’ confidence and reinforces our view that shares trading at a materially lower valuation compared with peer communication services companies may not be long term. The PCAOB’s announcement on August 26 that it signed an audit cooperation agreement with Chinese authorities is another major positive, hopefully reducing the risks associated with the company being identified under the HFCAA and not being fully inspected and investigated by the PCAOB. We have raised UCL’s valuation to $7.0 using discounted cash flow, contingent on the company maintaining its successful execution.
About uCloudlink Group Inc.
uCloudlink operates as an innovative mobile technology company that offers the world’s first and leading mobile data traffic sharing marketplace to users globally, with aggregated mobile data allowances from over 311 MNOs (mobile network operator) in 56 countries and regions. Leveraging its integral cloud SIM technology, it allows users to enjoy a smooth mobile connectivity experience without limitation to one MNO. uCloudlink was incorporated in 2014 and is headquartered in Hong Kong.
For more information, visit https://ucloudlink.gcs-web.com.
About Diamond Equity Research
Diamond Equity Research is a leading equity research and corporate access firm focused on small capitalization companies. Diamond Equity Research is an approved sell-side provider on major institutional investor platforms including Factset, Morningstar, and Thomson One.
For more information, visit https://www.diamondequityresearch.com.
Disclosures:
Diamond Equity Research LLC is being compensated by uCloudlink Group Inc. for producing research materials regarding uCloudlink Group Inc. and its securities, which is meant to subsidize the high cost of creating the report and monitoring the security, however the views in the report reflect that of Diamond Equity Research. All payments are received upfront and are billed for research engagement. As of 09/08/2022 the issuer had paid us $70,000 for our services, consisting of $20,000 for an initiation report and $15,000 for six update notes in the first year of coverage and $35,000 in the second year of coverage for update notes during the term, which commenced 06/01/2021 and is renewable annually. Diamond Equity Research LLC may be compensated for non-research related services, including presenting at Diamond Equity Research investment conferences, press releases and other additional services. The non-research related service cost is dependent on the company, but usually do not exceed $5,000. The issuer has not paid us for non-research related services as of 09/08/2022. Issuers are not required to engage us for these additional services. Additional fees may have accrued since then. Although Diamond Equity Research company sponsored reports are based on publicly available information and although no investment recommendations are made within our company sponsored research reports, given the small capitalization nature of the companies we cover we have adopted an internal trading procedure around the public companies by whom we are engaged, with investors able to find such policy on our website public disclosures page. This report and press release do not consider individual circumstances and does not take into consideration individual investor preferences. Statements within this report may constitute forward-looking statements, these statements involve many risk factors and general uncertainties around the business, industry, and macroeconomic environment. Investors need to be aware of the high degree of risk in small capitalization equities including the complete loss of their investment. Investors can find various risk factors in the initiation report and in the respective financial filings for Ucloudlink Group Inc.
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