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Adding to a Tech Position

We will buy more MobileIron as the shares settle out during a transition year for the company.
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After you receive this Alert, we will buy 500 shares of MobileIron (MOBL) at or near $4.50. Following the trade, MobileIron will represent roughly 2.5% of the portfolio.

Following last week’s December-quarter earnings report by MobileIron that underwhelmed relative to expectations as well as guidance, the shares have settled out near the $4.50 level. As a reminder, while resetting 2020 expectations, MobileIron said it expected 2020 to be a transformational year for the company to a subscription-led business.

In our experience, a transformation to this type of business model tends to weigh on revenue and earnings until that transition is complete. MobileIron targets that completion by mid-year, and as such expects a stronger second half of 2020 compared to the first half.

From a valuation perspective there are several positives associated with the subscription business model, including predictable revenue and cash flow, which in turn, tends to drive relatively predictable earnings per share and result in favorable valuation metrics. The bad news is consensus expectations for the company have fallen for both 2020 as 2021 to losses per share of $0.11 and $0.01, respectively, from EPS of $0.03 and $0.11. Even if we add some downside cushion to those figures, it means the company is likely to lose between $13 million-$15 million over the coming eight quarters.

The good news is MobileIron has ample cash and equivalents on its balance sheet -- $94.4 million exiting the December 2019 quarter -- to weather the transformation. As our society becomes increasingly connected, due in part to the eventual tipping point with 5G and the Internet of Things, odds are high that cybersecurity will continue to be a growth market. That helps keep us patient as MobileIron transitions its business. Still, we will keep a close eye on the company’s cash burn in the coming quarters.

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