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Riverbed clobbers Cisco
Mon, 10/25/10 - 6:33pm    View comments

RiverbedCiscoRBC Capital Markets Managing Director - Mark Sue provides his take on Riverbed's 3Q10 financial results:

"Cisco and others are lackadaisically leaving Riverbed to clean up in WAN optimization and a combination of market growth and market share gains enabled Riverbed to post a whopping 17% sequential revenue growth and exceed its target OM margins. For CY11 our recently increased estimate of $1.40 bumps higher to $1.50, price target to $45.

Mark SueRBC Capital Markets"Riverbed reported revenues of $148M (+17% QoQ), which was ahead of consensus of $135M and most buyside expectations of $140M. Non-GAAP EPS came in at $0.34, above the street's estimate of $0.28. Deferred revenues increased sequentially to $108M (+6%) and 4Q10 revenue was guided between $155M and $158M (+5% to +7% QoQ) vs. consensus of $146M. Pretty clean results with product revenues of $103M (+22% QoQ) and Service revenues of $45M (+8% QoQ) with broad strength across regions. Direct channel revenues (5%) increased +11% QoQ and Indirect channel revenues (95%) increased +17% QoQ as Riverbed adopted two-tiered distribution in the U.S."

Riverbed vs. Cisco stock price chart

Riverbed vs. Cisco stock price chart
Source: Yahoo! Finance

Sue continued, "Riverbed's business remains well diversified across major industry verticals and the company noted strong demand from the government (21% of revenues), financial, healthcare and consumer verticals. U.S. revenues (55%) increased +27% to $81M, EMEA revenues (26%) increased +17% to $38M, and Rest of world revenues (19%) increased to $29M. Deal sizes continue to grow for Riverbed as existing customers deploy new equipment and the high end data center centric Steelhead 7050 gains in popularity. Riverbed's revenues for the quarter came mostly from existing customers (85%) and 15% came from new customers."

Sue added, "Gross margins increased from 77.3% to 78.0% on increased top-line growth and gross margins are guided to be in the range of 76% to 78% in 4Q10. Operating margins increased from 24.2% to 28.1% due to leverage of the financial model. For Q4, Riverbed is guiding operating margins flat to 3Q near 28%.

Sue concluded, "Riverbed announced a 2:1 stock split with a record date of 11/1. Riverbed also announced a tuck-in acquisition of CACE Technologies for less than $20M. CACE provides packet capture and analysis products, which complements the offerings from Cascade. All in all Riverbed is executing well with strong market dynamics in WAN optimization providing a positive tailwind for sequential revenue growth."

What's your take, why do you think Riverbed is clobbering Cisco?

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