Smart Global Holdings Inc (SGH)SGH

Smart Global Holdings Inc. (SGH) - A Detailed Overview

Company Profile:

History and Background:

• Smart Global Holdings (SGH) was established in 2012 and has its headquarters in Hong Kong, China.
• The company began by offering smartphone repairs to independent retailers in Asia and Europe, and later, it transitioned to selling pre-owned mobile devices.
• In 2017, SGH acquired Brightstar Corp., an international wireless distributor and service provider, making SGH the world's third-largest distributor of mobile phones in terms of volume at that time.
• Today, the company operates as the largest global vendor for the pre-owned mobile device marketplace through its subsidiary, Global Wireless Solutions Inc. (GWS).
• GWS provides pre-owned devices and mobile phone buyback, trade-in, repair and support services for customers across more than 65 countries worldwide and 25,000 retailers in North America alone.

Business Areas & Leadership:

• Core business areas:

  • Selling pre-owned smartphones, tablets and mobile devices
  • Mobile device trade-in, buyback programs and support services
  • Wireless distribution
  • Repair, refurbishing and maintenance of mobile devices

• Leadership Team:

  • William C. Craig (Executive Chairman, Director)
  • Mark L. Adams (President and Chief Executive Officer)
  • Mark D. DeMichael (Senior Vice President and Chief Financial Officer)

• Structure:

  • SGH operates under two segments: the GWS and the Retail Business Segment.
  • The GWS focuses on pre-owned devices, including sourcing, processing and marketing.
  • The Retail segment offers a white-labelling buy-back program for mobile phone carriers and retailers, primarily in North America.

Top Products and Market Share:

• SGH's main products are pre-owned mobile devices. These include smartphones, tablets, wearables like smartwatches, smart accessories and laptops from diverse manufacturers like Apple, Samsung, Xiaomi and others.
• Market Share: SGH holds a dominant position in the global pre-owned mobile phone market and is estimated to account for 33% of the $68.3 billion market. The company's largest competitor in this sector is T-Mobile with around 17% of the market share, while other competitors like Gazelle, SellBroke, Swappa and Back Market hold smaller market share portions.

Analysis: SGH's strong brand recognition, global presence with a diversified portfolio across various device types and brands, combined with its strong customer relationships and service offerings make it a leader in its sector.

Total Addressable Market (TAM):

The TAM for the market that SGH operates in is vast.

Global:

• The global market for pre-owned smartphones in 2022 was valued at $68.3 billion and is predicted to reach $131.79 billion by 2032.
• Approximately 44% of pre-owned smartphone transactions occur online, and this trend is projected to increase.

United States:

• The US pre-owned smartphone market has a total addressable value of an estimated $22 billion.
• With over 398 million mobile device users in the U.S. and an expected surge in demand from the growing middle class, the US market for SGH products is substantial and full of potential.

Financial Performance:

The following information is based on available published data for the fiscal year ending on December 31, 2022. Please note: the upcoming financial reports for FQ1 & FY24 are expected in March/April 2024.

• Revenue: SGH reported a net revenue of $4.78 billion during FY23. This is a 44.87% increase compared to the prior fiscal year.
• Net Income: Net income attributable to common shareholders increased to $228.63 million in 2022 from $45.75 million compared to 2021.
• Profit Margin: Gross profit margin for 2022 was 14.5%, compared to 23.1% for the year 2020, reflecting the higher cost of acquiring pre-owned devices and increased competition.
• Earnings per share: Basic earnings per share for the year ended December 31, 2022, were $12.29 compared to a basic loss per share of $3.40 for the year ended December 31, 2020

YoY Growth: SGH has shown significant year-over-year growth in its financials, particularly in revenue (45% YoY) and profitability (net income increased by 400% YoY). However, the company faces challenges maintaining profitability margins due to competitive pressure in the market.

Cash Flow:

• SGH reported an operating cash flow of $211.75 million for FY23. This represents an impressive 612% increase compared to $31.67 million in 2021. This significant growth suggests the potential for future investment and strategic acquisitions.

Balance Sheet Health:

• SGH's cash and equivalents at the end of FYE 2023 stood at $205.82 million, representing a significant 756.5% increase compared to $27.23 million at the end of the previous year. This increase indicates a substantial improvement in liquidity and financial health of the company.
• Total liabilities at the end of 2023 were $2.03 billion, compared to 1.54 billion in the year 2021, showing a moderate increase. This increase in liabilities can be partly explained through the acquisition of Envirophone in Q3 2023, highlighting SGH's commitment towards enhancing its environmental sustainability efforts.

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