Syniverse Holdings, Inc. (SVR) took quite a hit back in early November as the loss of a major customer frustrated investors.  The stock dropped 44% the day after it released earnings on November 5th.  At issue was an agreement by Alltel and Sprint to in-source the processing of mobile data roaming traffic.

Syniverse is a major player in the wireless data business.  The company produces technology to assist with interoperability (the ability for data plans on different carriers to operate seamlessly).  While the name may not be a household staple, the company has a wide footprint with customers in 120 different countries and relationships with more than 600 wireless operators.  As more of the worlds population turns to the use of cell phones (and a greater majority of those cell phone plans include data), Syniverse should see its addressable market expanding.

Up until the earnings release in November, investors had been pricing SVR stock as a growth play with a healthy multiple.  The multiple appeared to make sense as competition was having a hard time beating SVR when vying for contracts, and international expansion was adding to revenues and earnings.  But as two major customers internalized the function offered by SVR, investors grew panicky and extrapolated this decision out as a potential option for other customers.

However, it is very unlikely that many of SVR’s customers will follow suit.  Since mobile data interoperability is a very intense (and necessary) function, few carriers will have the resources or confidence to oversee this function internally.  Carriers would do better to concentrate on growing their own business and letting SVR take care of the technically intense issues.  Analysts who cover the stock still expect earnings of $1.53 in 2009 and are likely to increase those estimates if acquisitions or organic growth play more of a part in the coming year.

The stock now trades just above $10 which gives us a published PE of just 7.  This is likely a very cheap price to pay for such a quality company.  Bears point out that the company has $520 million in long-term debt, but that number could be significantly reduced.  This debt is trading at a discount on the open market and with more than $125 million in cash (as of the third quarter report), the company could easily step in and buy some of these bonds back at a discount.  This would lower the cost of capital and add strength to the company’s balance sheet.

SVR has rebounded sharply off of its $6.80 low point and appears to be gaining some institutional support.  The stock has a long way to go to return to its previous range, but fundamentals may now be working in the company’s favor and I expect the next year to be a strong one for this technology firm.

FD: Author does not have a position in SVR
SVR Notes

Additional Reading:
Tech Trader: Goldman Downgrade on AT&T, Cut Estimates on VZ
WSJ: FCC approves Wireless Deals