Honestly, it really depends on what the company says compared to expectations. Knowing the company and the stock is the key. The stock reaction can have nothing to do with the company. It might be a buying opportunity. Or if the story has changed, investors have to be willing to cut and run.
After the bell tonight, Riverbed Technology (RVBD) reported Q112 numbers that were essentially in-line. Unfortunately, the company guided to Q212 numbers that were a major disappointment to the market. The stock plunged nearly 18% in after hours.
Was this move justified? Is the valuation so stretched that bad numbers suggest the stock should plunge?
Riverbed is in the middle of a massive product refresh cycle along with numerous new products. Large customers can take up to 2 or 3 quarters to qualify new products for their networks so a slack in revenue shouldn't be unexpected.
Sure the guidance was lower than hoped after already being let down after the Q411 report deflated the excitement over this stock. Still the company guided to major sequential growth plus 15% YoY growth.
Anybody taking time to listen to the conference call should have a more positive outlook on the company. Riverbed will benefit from the massive move to the cloud and apparently the company isn't losing any market share. In fact, #3 player Blue Coat Systems became less competition during the quarter. So much for the competition fear!
Below is a summary of the new product per the earnings report and a summary of the major news from the conference call.
New products released during Q112:
- Launched Steelhead® CX Series - dedicated wide area network (WAN) optimization appliances that overcome bandwidth and geographic limitations to make users more productive, data transfers faster, and applications perform seamlessly regardless of location.
- Introduced Steelhead EX Series - multi-function, enterprise-class branch office appliances that build on Riverbed's award-winning WAN optimization solution and add a robust platform with more memory, solid state drives, and CPU capacity to support the Virtual Services Platform (VSP) and Granite™.
- Introduced Riverbed® Granite, extending WAN optimization to support edge-VSI (edge virtual server infrastructure) that allows IT to consolidate and manage all edge servers in the data center.
- Introduced Steelhead Cloud Accelerator, a jointly developed solution that combines Akamai's innovative Internet optimization technology and market-leading Riverbed WAN optimization technology to deliver end-to-end optimization for SAAS applications.
- Delivered industry-first capabilities to the Cascade® application-aware network performance management (NPM) solution. Cascade Profiler is the first NPM solution to provide streamlined configuration for service monitoring across application delivery controllers including Riverbed Stingray™ Traffic Manager, F5 Local Traffic Manager, and others. Virtual Cascade Shark is the first product to offer continuous packet capture and performance analysis in virtual environments.
Conference call highlights:
- Customers delayed purchases to test new products including looking into replacing Steelhead with Granite.
- CIO's place WAN Optimization in top 2 priorities.
- Majority of boxes are for greenfield customers. Very few go to replacing existing boxes. The new products might finally provide the ability to up sale though older products will be supported through early 2014.
- Company estimates that the WAN optimization market is still in infancy. Roughly 400K units delivered with a potential market of 4-6M.
Tomorrow might be ugly for RVBD, but investors need to understand that the future is probably stronger than ever with all these new products. Granite and Steelhead Cloud Accelerator have the potential to allow Riverbed to finally breakout from a one product shop. The Steelhead line needed a major update.
Don't fall for the panic as Riverbed has a bright future.