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2good2betrue (20.46)

Only question about SYNC is when to short!

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May 03, 2012 – Comments (0) | RELATED TICKERS: SYNC

I've followed with great interest what has been written recently about middleware Synacor (SYNC). People mistakenly put them in the same business as Netflix (NFLX) and even Comcast (CMCSA). Perhaps it is because they were recently an IPO and so that gets people's attention. However, when I think of them my first impression is to think BigBand Networks (BBND) - who made a big splash after its IPO climbing nearly 50% to the mid twenties only to be sold this past year at the fire sale price of around $2.

Anyone who tells you that you can make a business selling software as a service (SaaS) to service providers like cable or telephone operators need to seriously do their home work. There are numerous past examples, most of which have either went bankrupt, acuired before going bandrupt, or were fortunit enough to find a buyer early on. This business just doesn't scream profits - rather it is a high cost service and has disaster written all over it. Think of other similar players who have done this like @home and how that whole service fell apart. 

The biggest thing working against SYNC is that service providers don't value software. All service providers firmly believe that software should be "free" and if it isn't they always want it for less money. This works directly against "outsiders" who want to make a profit selling software to this industry. Also look at companies providing Tru2way (i.e. OCAP) applications for cable operators - show me one of those companies that are public and making increasing profits - good luck finding one! The only companies making money on Tru2way are small development shops with extremely very low overhead and willing to build custom stuff.

For SNYC to successfully make a go, it needs to be able to build once, then repackage and sell the same product to multiple larger operators. This model clearly won't work - it will never work. Why? Because no one operator wants to be the same and rebranding isn't going to do it. What operators want is very clear and differentiated features that distinguish themselves from others (whether they compete directly with them or not). If SYNC goes down the path of as-built (or one-off) type development for its customers, its internal costs (and pricing) is going to go throught he roof - to the point where it prices itself right out of the very market it strives to say within. Under such pretenses, its customers will no doubt reflect whether it is cheaper to build in house or seek off the self solutions.

Charter is being obviously touted as a big win for SYNC, it is going to be a tough road to break into larger operators who already have huge teams of developers. Look at Verizon (VZ) who pulled in-house development of their guide away from Microsoft (MSFT), look at Comcast who pulled in guide development away from Rovi (ROVI), these are huge software development companies that service provdiers have pulled the plug on - much larger than SYNC. So, given that what makes people think SYNC is going to survive any better than than ROVI or MSFT? Charter should not be considered a "true" win, rather Charter is simply a company who is too poor to afford its own internal development so it buys something to "get by" until such time as it can pull the whole thing in-house. So, this huge win for SNYC is temporary at best.

How high will SYNC go? I don't have a crystal ball, but if one is fortunite enough to find a 52 week high, shorting the company will definitely lead to a rosier profit than the belief that the sky is the limit for this IPO.  

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