Friday, October 22, 2010

Riverbed Soaring Today After Earnings Report, Bringing F5 Up With It

By David Gross

Following yesterday's earnings report, Riverbed is soaring today, up over 20% in afternoon trading.   Revenue came in at $147 million, ahead of guidance of $136 million, with EPS beating by six cents.  The company offered guidance of $155 million to $158 million for next quarter, ahead of expectations of $150 million.    Volume is approaching 7 million shares, well ahead of the 2.5 million it does in a typical day - and the more stocks trade hands, the more data centers benefit.  The good news has spread to other leading L4-7 networkers, most notably F5 (FFIV), which reports after Tuesday's close, and is up 5% to 97.33, it's highest level since Goldman Sachs came out with its oddly-reasoned research note downgrading the company two weeks ago.

Nonetheless, this is yet another Wall Street overreaction.  Just as Equinix (EQIX) did not deserve to lose a third of its value over a 2% drop in revenue guidance, Riverbed's ability to beat top line estimates by 8%, with a 5% upward revision for next quarter, does not justify a 20% increase in one day.   The company helped fuel this manic buying by announcing that it will split its stock next month.

There is no question that this is a well run company that has taken share away from Cisco (CSCO), Packeteer/Blue Coat (BCSI), and Juniper (JNPR) to become the leading TCP Acceleration/WAN Optimization vendor, but the Wall Street's overreactions are themselves probably creating more near term opportunities for investors than fundamentals.

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