After a surge in shares of Riverbed Technology (RVBD) last month, it might be time for investors to reduce their position. Though the company has a buyback program, net insider sales slower government spending, and higher OPNET execution risks are a worry. These issues all suggest there may be downside ahead for Riverbed shareholders.
Q3 results from Riverbed were good. The company generated revenue of $262 million. Net income (Non-GAAP) was $43.3 million ($0.26 per diluted share), a slight decline from $43.3 million last year. The company introduced a number of new wide area network optimization products in the quarter. This includes a new Steelhead (CX 255) series appliance. Riverbed Cascade and OPNET products were integrated. This sets the stage for cross-selling opportunities to customers.
Despite the company buying shares, insiders were selling them. Riverbed repurchased 50 million shares in Q3 at prices averaging $16.05 per share. It still has $213 million available for repurchasing shares. Conversely, insiders were net sellers in shares of Riverbed in the last 12 months:
Last 3 Mo.
Last 12 Mo.
Number of Insider Trades
Number of Sells
Number of Shares Bought:
Number of Shares Sold:
Revenues outpaced costs in Q3, but not by much. Revenue increased to $261.7 million, up from $218.6 million , but operating profits declined from $39.5 million to $2.5 million. Higher expenses could be to blame:
Sales and marketing
Research and development
General and administrative
Figures in thousand $
Most notably, Riverbed saw sales and marketing costs soar by 42% to $116.2 million. This should support higher revenue in the long term, but the next few quarters could remain a challenge.
Cash levels declined from $280.5 million to $207.8 million, while inventory rose from $24.2 million to $31.7 million:
Cash and cash equivalents
Trade receivables, net
Figure in thousand $
Riverbed ended Q3 with $522M in debt.
Riverbed expects revenue to be between $270 million to $276 million. This will be up from last year, but will be similar to Q3 levels. Earnings per share are expected to be $0.26-$0.27 per share. Weak demand from big government will hurt revenue growth. Margin growth is expected to be 24% in Q4.
Riverbed successfully integrated Cascade to OPNET, but it will take time to unify the sales force. Growth of 13% - 15% in Q4 is achievable, but in 2014, Riverbed could face delays in generating faster revenue growth.
For the last two years, Riverbed faced seasonal weaknesses in Q1 (2014) for WAN optimization. Sales declined by more than 10% sequentially. This round, integration challenges with the sales team could contribute to a weakness in WAN sales. If that is the case, a light guidance in Q4 could convince shareholders to take profits. Instead of waiting for the quarterly report, investors might want to consider taking profits at current levels.