Tuesday, February 5, 2008

Riverbed Technology (RVBD) Continues to Execute and the Stock Continues to Fall

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Riverbed Technology (RVBD) is one of the classic "perception is reality" stocks. No matter what it says, there are fears of pending slowdowns so the stock gets hit. Sadly, there appears to be no way to win with a few of these names, despite continued performance. Another fantastic quarter... beat on the top line, beat on the bottom line... and the stock is down in after hours. I don't see any guidance out in the report so they will probably address it in the conference call.

Before the report, Yahoo was out with a story 'explaining' the weakness.
  • Shares of Riverbed Technology Inc. fell Tuesday ahead of the company's fourth-quarter report scheduled for after the closing bell, amid investor worries over how the uncertain economy will affect its forecast.
  • Riverbed's wide area network optimization technology helps boost the performance of applications shared over networks. Analysts expect solid results for the quarter, as the company dominates the WAN optimization market, where demand is strong.
  • Riverbed "continues to enjoy a feature performance and scale lead over its competition and continues to win a majority of contests," wrote ThinkEquity analyst Jonathan Ruykhaver in a client note. He expects Riverbed's first-quarter guidance to meet Wall Street projections.
  • "Although we believe that WAN optimization has a high (return on investment) for enterprises and, hence, its long-term secular trend is strong, there is always the potential of enterprises delaying spending in light of economic uncertainty," Ruykhaver wrote. "However, we believe consensus expectations appear reasonable in light of fundamental trends."
  • Wedbush Morgan analyst Rohit Chopra expects Riverbed to "slightly exceed" estimates for the quarter. He rates the stock "Hold," and said there is evidence of growing competition in the WAN optimization market, which has "turned into a two horse race between Blue Coat and Riverbed."
  • "Guidance will be key to the stock, but we recommend staying on the sidelines as macro headwinds increase and WAN optimization threatens to become a discretionary item," Chopra wrote.
So as you can see, a slowing economy sinks essentially all boats. We have yet to see any slowdown in either Riverbed Technology or Blue Coat Systems (BCSI) but just the threat that "some day it might happen" has been enough to halve both stocks. It remains a very difficult area to be long, so I am sitting on losses on both names ... they constantly disprove critics but constantly get hammered. Again "Perception is Reality", and that is all that matters at times in the market. The valuations are now getting "cheap" in light of the heady growth rates, but in a market like this, value means nothing. So I'll have to think and re-assess these 2 names. Not due to their fundamentals but the perception that overhangs them now has no reason to go away for the next 2 weeks, 2 months, or 2 quarters in fact. It seems a bit ridiculous that these stocks continue to sell off at these values.
  • Revenues for the fourth quarter of 2007 were $76.3 million, an increase of 126% from the fourth quarter of 2006 and a 21% increase over the third quarter of 2007.
  • Excluding the impact of stock-based compensation and related payroll taxes in all periods, the non-GAAP net income for the fourth quarter of 2007 was $14.6 million, or $0.20 per share, compared to non-GAAP net income of $2.4 million, or $0.03 per share, in the fourth quarter of 2006.
  • Revenues for the year ended December 31, 2007 were $236.4 million, a 162% increase from $90.2 million of revenues in the prior year. Riverbed posted its first full year of profitability in 2007.
  • Over the past year, we have continued the rapid expansion of our business, growing revenues by 162%, adding over 1,800 customers and building a business that generated over 18% non-GAAP operating margins in 2007 compared to losses in 2006,
  • GAAP gross margins reached 75% for the first time in the fourth quarter, significantly ahead of plan and reflecting reduced costs and a positive product mix. We have continued to invest in building out our R&D and sales marketing organizations given what we believe continues to be a large and growing market opportunity, said Randy Gottfried, Riverbed chief financial officer.
Long Riverbed Technology, Blue Coat Systems in fund; no personal positions


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