Thursday, April 14, 2011

IBD: Riverbed Technology's Move into the Cloud

A nice piece in Investor Business Daily, speaking to Riverbed Technology's (RVBD) move from focusing solely on WAN and into the cloud - something we touched on last summers. [Jul 23, 2010: Riverbed Technology Impresses the Street; Announces New Product so it Can be Part of the "Cloud"]  Again, yesterday's pre-announcement was not due to an incredible quarter, but the view on the name had soured so quickly that I think even an "in line" report would have led to a nice rally. I have followed this company for years on end, and I remain flabbergasted Cisco (CSCO) or Jupiter Networks (JNPR) never snapped it up.  That said, with so few high growth U.S. companies (most are snapped up by giants in their sector early in their life) left in the public market, I am thankful.


  • In November, Riverbed Technology (RVBD) launched its Whitewater appliance, which took Riverbed's product line into the world of cloud storage. For most of its nine-year existence, Riverbed specialized in ramping up the speed of wide-area networks, or WANs, which allow enterprises to connect their branches in different cities and even countries.
  • Riverbed's appliances combine hardware and software to track network traffic and strategically compress data files to free up space. That business has been very good lately, as the company showed late Tuesday when it released preliminary first-quarter results that beat analysts' expectations.
  • It was a natural progression to move from the WAN to the cloud. Cloud computing is much like a WAN, except that instead of its own in-house network, the enterprise uses the Internet. That should only increase the current trend toward data-center consolidation, analysts say.
  • "There could come a day when companies don't have big data centers," said R.W. Baird analyst Jayson Noland. "In that world, it's a pretty difficult life for a lot of vendors because there are fewer, larger buyers. But in the world that is Riverbed, that's a good trend because every office becomes a branch office."
  • On the same day that Riverbed announced Whitewater, it also launched Cloud Steelhead, "the first wide-area-network optimization solution purpose-built for public cloud environments," according to the press release. Steelhead focuses on Riverbed's traditional business of helping move data around. 
  • Noland is more interested in Whitewater, however, as it offers a cloud-based version of a hot technology known as data deduplication.  Deduplication removes all the multiple copies of data that inevitably build up with current backup and archiving methods. Every time you backup, you copy your latest material along with everything you previously backed up, often multiple times. Deduplication software has to be smart enough to eliminate the chaff without destroying anything crucial.  "When you back up your data, you want to get it off-site to some other place, and you don't want to build a facility in the desert," Noland said. "It kind of lends itself to the cloud."
  • It says something about analysts' interest in Whitewater that, in Riverbed's fourth-quarter conference call on Jan. 27, the very first questioner asked how Whitewater was doing. "We're really pleased with the market reaction to Whitewater," replied Eric Wolford, Riverbed's senior vice president for business development and marketing. "And, in fact, both of our cloud products' position is great." But he reminded the group that the products are so new that the firm expects no impact on revenue this year.
  • In his March 7 initiation report on Riverbed, ThinkEquity analyst Rajesh Ghai opined that even though the WAN market has grown rapidly in the last few years, there's still plenty of room for expansion. He cites not only the cloud and consolidation trends, but also virtualization, which allows techies to pack even more computing power into their hardware.
  • Historically, Riverbed has grown even faster than its market by taking share. Noland says that in the middle of the last decade, there was some worry that Cisco Systems (CSCO) would integrate WAN optimization into its networking products, eliminating the need for a separate purchase from Riverbed. But that hasn't happened.
  • "Cisco has not executed well," Noland said. "And Riverbed's gone from 20% to 45% of the market. This is clearly a product, not a feature." Riverbed also differentiates itself by the breadth of its product offering, which it has sometimes expanded through small acquisitions. Last year it scored two of them.

[Aug 13, 2010: IBD - Riverbed Technology: Its Network Technology Feeds a Digital World Hungry for Speed]
[Feb 11, 2010: IBD - Riverbed Technology: Making the Network Faster Pays Off] 
[Jun 29, 2009: Even Handed Story on Riverbed Technology on CBSMarketwatch]   
[Nov 27, 2007: Riverbed Technology - Fortune Article]

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