Normally I cut back positions ahead of earnings but every so often I take a walk on the ‘wild’ side and stay ‘all in’. Since I have sold just about all of the ‘cloud’ (and cloud “me too”) stocks, I decided to just hold all of the one we have remaining. Let me be clear – Riverbed Technology (RVBD) is not really a cloud stock (they just announced their first cloud initiative last quarter), but I am not going to argue with a room full of hopped up bulls. What do I know – I’ve only been following the stock for half a decade. If Wide Area Network optimization is the new cloud so be it – double the valuation.
Riverbed beat estimates by 7 cents (34c v 27c) – revenue came in +13M (148m v 135m). Gross margin 74.5%. They announced a 2:1 split. And now 1/5th of their revenue comes from the most predictable source in the country – government. Thank you taxpayer – good stuff all around.
For the year the $1.02 estimate immediately goes up to $1.09 with a quarter (estimated at 30 cents to go). That 30c in Q4 is based on $145M in revenue so based on Riverbed’s guidance of $155-$158M obviously a number closer to 37 cents will be in order. (the company forecasts 35c) So that adds another 7 cents to the year – taking us to $1.16 forecasted EPS for 2010. The stock is up 8% in premarket to just over $49; so we’re looking at forward PE of 42 based on my back of envelope figures. Certainly not cheap by any means, but if we’re headed back to NASDAQ 1999 PE multiples via Fed printing, PE is only limited by the amount of money our central bank prints. The stock is up 50% in the last 90 days – let’s keep it going, anyone for another 50% in the next 90?
Unlike the other cloud network plays, this stock actually has not suffered technical deterioration over the past few weeks.
Update: I was joking in the earlier piece when it was noted RVBD rallied 50% between the last earnings report and this one, when I said let’s do ANOTHER 50%.
Well, maybe it’s no joke – the stock has put on 20% today, so only 30% more to go. Yikes.
And this is why people love to gamble on earning reports – the ‘thrill’ of one of these makes the -15 or -20% losses from those that disappoint seem like bad dreams.
Predictably, the computers are running into F5 Networks (FFIV) and Acme Packet (APKT) – although those have little to do with RVBD’s business, but they are the good ole ‘momo / pseudo cloud’ names – if anything Blue Coat Systems (BCSI) [a real peer] should be surging instead. But HAL9000 is just not that sophisticated.
As an aside, as I search around the “cloud” for some “rare earth metals” as I “netflix” myself to prosperity, I found a “burrito”. The one growth stock of the past 3 years I have talked about but never added to the portfolio once – bummer.
Disclosure: Long Riverbed Technology in fund; no personal position