Thursday, July 23, 2009

Riverbed Technology (RVBD): Heartless to Its Investors

By avoiding earnings roulette [Jul 22: Bookkeeping - Cutting Most of Riverbed Technology Ahead of Earnings] I often miss some nice gains as speculators rejoice in 10-15-20% after hours moves. However, I avoid blow ups. Blow ups make me unhappy - you wouldn't want to see me unhappy. (inside joke for those old enough) -->

Blowups such as Riverbed Technology (RVBD) tonight. Remember, rule #1 of making money: Don't lose money. The rest usually takes care of itself.

With Microsoft (MSFT) and (AMZN) - not to mention our friends at Capital One Financial (COF) and American Express (AXP) breaking hearts left and right in after hours, prospects do not look good for NASDAQ winning day #13 tomorrow.

In the night I hear 'em talk,
The coldest story ever told,

Somewhere far along this road

He lost his soul

To a STOCK so heartless...

How could you be so heartless... oh

How could you be so heartless?

But back to Riverbed... the stock is down 18% in after hours to about $21.00. (6:30 PM) This would actually push it below the 50 day moving average. We'll see how she opens tomorrow but remember that gap I cited down there below $16? Didn't seem quite plausible for that to fill at $25... much more plausible if we open closer to $20. Causing even more problems is the "gap down" and now 90 days of hand wringing until the next earnings report either reassures or continues to worry investors. This goes back to our comment about switching subtly from individual stock risk to market risk yesterday as we punted stock after stock on this run, and replaced it with index exposure (which we also punted today).

So I'd say there is a 98% chance we'll be punting the remaining 0.1% exposure as there are quite a few companies (a few we cited today) who executed well on earnings and we're just waiting for them to pullback. I'll most likely place a limit buy order down there in the $15s and sit back and wait for that to fill sometime in the next few months; if it does - good. If not, so be it. Could be a short candidate of course as well; we'll see.

Let's see what caused the issues... again, I'd say these results are "just fine" in relation to what we are celebrating in consumer discretionary but it's not the news; it's the reaction to the news. And for gosh sakes valuation maybe matters. Riverbed is not a cheap stock and needs to be perfect. Revenue missed by $2M and earnings were only "in line" with estimates. Full report here.
  • Total GAAP revenue for Q2’09 was $91.0 million, an increase of 12% from $81.6 million of GAAP revenue reported in the second quarter of fiscal year 2008 (Q2’08).
  • The GAAP net loss for Q2’09 was $290,000, or $0.00 per diluted share. This compares to a GAAP net loss of $869,000, or $0.01 per diluted share, in Q2’08.
Self, how do you have non GAAP revenue?
Mark: I have no idea - that's a first.

  • Non-GAAP revenue for Q2’09 was $91.6 million, an increase of 12% from $81.6 million of revenue reported in Q2’08.
  • Non-GAAP net income for Q2’09 was $10.3 million, or $0.14 per diluted share, as compared to non-GAAP net income for Q2’08 of $9.9 million, or $0.13 per diluted share.
  • Non-GAAP gross margins increased to 76.1%.
  • Deferred revenue increased to $70 million.
  • Cash, cash equivalents, and marketable securities of $269 million and no debt.
And that's about it, simple report. At 40x forward earnings I guess valuation finally matters especially if you don't "meet and exceed".

Long Riverbed Technology in fund; no personal position

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