Friday, February 18, 2011

Aruba Networks (ARUN) Scorches Upward, Despite CFO Departure

Aruba Networks (ARUN) is a name I've been watching for half a year or so, but have not mentioned in the blog.  This company is part of the 'mobile internet' tsunami if you will, and has had quite a year - hence showed up on quite a few of my screens. 

Last evening the company reported a solid quarter - very good growth but not far much above expectations (beat by 1 cent), WITH the CFO resigning.  Now there appears to be a good reason for the CFO leaving (venture capital) but that usually adds at least some questions to shareholders.  Not in the current environment.  Further, I can't recall many times when a 1 cent beat led to a 15% surge in shares.  Guidance was "fine" but nothing special versus expectation.  This is ebullient action, and showcases this market is a death trap for anyone daring to bet against it.

Revenue was a solid beat at $93.9M vs analysts $87.9M, while non GAAP EPS came in at .14 v .13.   (full report here)  The forward PE is now well above 50, but valuation is only a state of mind in the current frenzy.

Via IBD:
  • Aruba Networks (ARUN) late Thursday announced the surprise resignation of its CFO, but reported second-quarter results that beat analysts' views and maintained its triple-digit profit growth pace.  The maker of products that help workers link securely into computer networks with mobile devices also beat views with its Q3 outlook.
  • Aruba said per-share profit minus special items soared 133% to 14 cents from 6 cents a year ago. Sales for the quarter ended Jan. 31 jumped 50% to $93.9 million.  Analysts polled by Thomson Reuters had expected 13 cents on sales of $87.9 million.
  • For the current quarter, it sees EPS minus items of 14-15 cents on sales of $95 million-$98 million, where analysts were expecting 14 cents and $92.2 million.
  • "The phenomenon we are seeing is BYOD, or bring your own device," Aruba CEO Dominic Orr said on a conference call with analysts. "Employees expect to use their smart phones securely and immediately."
  • But the company also said that, after six years at Aruba, CFO Steffan Tomlinson would leave for an unnamed venture capital post on March 31. 
  • The stock has jumped 167% since early May.
  • "We believe that the enterprise network is transitioning from a wired-centric to a mobility-centric architecture and the market is recognizing Aruba's unique ability to address the requirements of this new architecture," CEO Orr said in a statement.
  • Aruba specializes in enterprise wireless access gear that securely controls mobile data for companies and other enterprises. It calls the much larger, broader-based Cisco Systems (NMS:CSCO) its top rival. Aruba says its focus helps it compete in its niche.  Aruba's access controllers aim to securely manage wireless communications going in and out of local area networks. Software systems in the data center filter the traffic to detect intrusions.
  • "As more mobile devices get used, they'll need to access the network locally," said UBS analyst Jack Monti. "Aruba plays an important role in filling that demand."  
  • Also, most of Aruba's clients run on the older 11g Wi-Fi wireless standard. Many are now converting to a faster 11n standard. This upgrade cycle should create "a multiyear tail wind for Aruba," said Gleacher & Co. analyst Stephen Patel.
  • Lately, Aruba's gross profit margins had been above its average 67%-70%, says Blaine Carroll of Hudson Securities, but the Q2 margin was 67.6%.
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