Monday, April 23, 2012

How Did A $5M Revenue Cut Turn Into A $1.35B Market Value Drop?

Clearly the market doesn't work in very precise ways, but honestly how does a $5M revenue cut in guidance lead to such a dramatic loss of market value? Maybe "fuzzy math" is at work.

Most investors probably saw that Riverbed Technology (RVBD) lost nearly 29% of its market value on Friday. The company reported basically in-line Q112 numbers. Not too bad at this point considering the major product transition going on. Then the wheels started falling off during the conference call. The CFO guided to revenue that at the high end would miss the $202M Q2 estimate by roughly $5M.

Yes, anybody doing the math is probably struggling to understand the stock plunge. It dropped 29% due to a 2% reduction in revenue. All while investors should've known that the company was going through a product transition that would muddy up the financials for the 1H of the year.

Read the full article at Seeking Alpha.


Disclosure: Long RVBD and CSCO. Please review the disclaimer page for more details. 


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