Wednesday, April 13, 2011

Riverbed Technology (RVBD) Preannounces... to the Upside

Back on March 22nd, I noted the technical weakness in Riverbed Technology (RVBD) as it first broke the 50 day moving average just under $37.  At the time I said it was a "short on weakness" stock until it proves otherwise, but wrote ....

if the stock drops to that 200 day moving average, I'd be a very interested buyer.  The chart would be a mess, but at that point you'd be speaking more from a fundamental/valuation basis.  

Yesterday would have been the day, to turn tail and cover the short and go long at the 200 day moving average as the chart shows.  RVBD fell significantly on the 1st of the month and has been weak all of April, finally grinding down to below $31 yesterday.  Following the above advice would have netted one a quick 16% in about three weeks via the short side.  And led to a long position as of yesterday.

Now what happened next would have been a stroke of good luck as the company preannounced earnings.  Normally preannouncements occur when the news is poor, but obviously Riverbed management was not happy with the stock price.  And based on the premarket action (the stock is up nearly 15%) all of April's losses would have been erased in a jiffy, and a (lucky trader) would not only have locked in the 16% short, but instantly effectively doubled the gain within 24 hours as the stock jumps right back up on the news.

Of course timing (and good fortune) is everything, because if this news had come out 24 hours earlier, the profitable short exposure (which would not have been closed out until the stock fell to the 200 day moving average) would have been erased, and losses ensued! 


The data from management was not a huge upgrade in the numbers by any means, but the stock was obviously pricing in a miss of some sort, hence the very violent reaction in the stock.   Via Reuters:
  • Riverbed Technology Inc raised its first-quarter forecast, which came in above market expectations, on strong sales of its network optimization products across geographies. Shares of the network equipment maker, which closed at $30.92 on Nasdaq on Tuesday, rose 14 percent to $35.10 in trading after the bell.
  • "The stock is reacting positively, given some of the concerns regarding first-quarter seasonality and worries of slowing sales in Europe," Pacific Crest analyst Brent Bracelin told Reuters.
  • Riverbed, which helps companies to move file and email servers from remote offices to data centers to cut costs, now sees first-quarter adjusted earnings of 19-20 cents a share, above its previous guidance of 18 cents a share.  Riverbed expects to post quarterly revenue of $163-$164 million, against the $159-$161 million it had forecasted earlier.
  • Analysts on average were looking for earnings of 18 cents a share, on revenue $161 million, according to Thomson Reuters I/B/E/S.

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