Shares of networking equipment vendor Riverbed Technology (RVBD) today fell $5.47, or 18%, to $24.45, after the company last night slightly exceeded analysts’ Q4 revenue and EPS estimates but forecast the current quarter’s results below estimates.
The weak forecast for the current quarter was related to the upgrade of a Riverbed’s “Steelhead” equipment, as hardware upgrades tend to prompt a slowing of sales before growth picks up again, the company explained on its conference call last night.
The stock received two downgrades today, from William Blair, and from FBN Securities. But several bulls rushed to defense, emphasizing that the disappointing outlook can’t take away from the company’s competitive prospects.
Bullish!
Scott Zeller, Needham & Co.: Reiterates a Buy rating and a $36 price target, writing that the upside in the quarter was “modest and likely below investor hopes.” Of the weak Q1 outlook, Zeller is looking ahead to a rebound later in the year. “It is important to note the announcement of refresh was just made, and impact to deal cycles is anecdotal � management is being conservative on 2008 history [...] We are optimistic for a 3Q-4Q rebound. If RVBD were neck-and-neck with an archrival, we would be concerned about loss of share in 1H12; however, RVBD does not face material competitive pressure.” Zeller cut his 2012 estimate to $869 million and $1.01 in EPS from $900 million and $1.16.
Jayson Noland, R.W. Baird: Reiterates an Outperform rating and a $30 price target. He advises investors to be “opportunistic with share price weakness through Q1.” The company is doing the right thing sacrificing some stability in its operating results in order to make its product portfolio more diverse: “Management emphasized its desire to make Riverbed a multi-product company. We support this decision and point out that these efforts have been a headwind to operating leverage upside. The Network Performance Management portfolio (Cascade) was 8% of product revenue and up 75% YoY. The Stingray portfolio (Zeus/Aptimize) contributed $5 million in revenue in the quarter which was the top end of guidance. Whitewater started to show revenue traction. We remain optimistic on this organically developed solution.” Noland raised his estimate for this year to $857 million and $1.05 per share from a prior $845 million and $1.04 per share.
Erik Suppiger, JMP Securities: Reiterates a Market Outperform rating and a $35 price target. The company has good products for growth, he thinks, and the disappointment last night is really just about re-setting the bar to avoid disappointment down the road: “Riverbed has not refreshed its mid-range portfolio of appliances since 2008/2009 and we understand the new appliances will provide significantly better price/performance metrics in addition to supporting integrated versions of the company’s new Granite technology. Riverbed also just recently introduced its new RiOS 7.0 software which supports a rich feature set. Riverbed has missed its 2nd fiscal quarter in two of the past three years and we believe management wants to ensure the company is in a position to carry good momentum into Q2.” Suppiger maintained his 2012 revenue estimate at $864 million but cut his EPS to $1.04 per share from $1.18.
Bearish!
Shebly Seyrafi, FBN Securities: Cut his rating to Sector Perform from Outperform, with a $28 price target, down from $31. “Although we believe that we are at a �low-water� mark and hesitate to downgrade here, we still do so as 1.) we believe that RVBD�s guidance for F2012 revenue growth of 17-20% creates a rather high-bar for quarters FQ2, FQ3, and FQ3, all which need to grow nearly 10% Q/Q in revenue for the annual guidance to be achieved, and 2.) even with an expected pull-back in RVBD�s share price to perhaps $26 today, there is less than 10% upside to our new $28PT.” Seyrafi cut his 2012 estimate to $853 million and $1.04 per share from a prior $879 million and $1.18.
Troy Jensen, Piper Jaffray: Reiterates a Neutral rating and cuts his price target to $24 from $25. The weak Q1 revealed “chinks in its armor.” “Going forward, we note increased execution risk to Riverbed�s sales as its flagship Steelhead product displays a decelerating growth rate and adjacent market revenue is expected to provide the upside. The company�s high ROI and quick payback product line should enable it to remain resilient in a sluggish economy, but the declining earnings power driven by negative operating leverage is a point of caution.” Jensen cut his 2012 estimate to $863 million and $1.02 per share from a prior $869 million and $1.08 per share.
George Notter, Jefferies & Co.: Reiterates an Underperform rating but raised his price target to $17.25 from $16.50 previously. The company’s “WAN optimization” networking market is “more penetrated than we thought,” and it may be hard for Riverbed to find adequate sources of growth. “Perhaps the key trend that has us concerned about Riverbed�s core WAN Optimization business is the downward Y/Y growth
trend by quarter. Infonetics has the WAN Optimization market growing 10% in 2012 and 8% in 2013. Finding growth outside WAN Optimization may prove difficult.” Notter actually raised his 2012 revenue estimate to $863.9� million from $849.9 million, but he’s sticking with his $1.05 per share EPS estimate.
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