Is Riverbed Technology the Next Cisco?

Riverbed Technology, Inc. (RVBD) provides solutions for wide-area distributed computing in the United States and internationally. It offers Steelhead appliances, which consist of its RiOS proprietary software embedded on a general purpose hardware computing platform. The company's line of Steelhead appliances addresses the needs of customers, such as small office deployments, and large headquarters and data center locations. It also provides Central Management Console, a product designed to manage various Steelhead appliances distributed across a wide area network, simplifying the tasks of deploying, configuring, monitoring, reporting, and upgrading large numbers of Steelhead appliances.

I have owned RVBD for about a month, from the day they declared results. They blew past revenue estimates and made a profit for the first time since their IPO, which is within 6 months, and is an achievement.

However, their stock quite set off like a rocket because of their bad decision to announce a secondary on the same day as the results came out. The stock took quite a beating that day, falling almost 12%, mainly on fears that the secondary offering will dilute the number of shares available and bring down EPS, resulting in a share price decline.

A few days later they announced that the secondary would be priced at $32.55, and the secondary has come and gone, with very little effect on the stock.

Here's why I like the stock:

1. The company has technology which is highly niche and pathbreaking. Within a few months of IPO, they have turned a profit, which is highly commendable.

2. During the broad market slaughter, the stock barely moved a bit. This to me shows some investors who are well versed with the future of the company and have faith in its technology.

3. Insiders own a huge part of the outstanding shares, which is always good news. When insiders own a lot of shares, they work a lot harder, becase a stock price appreciation benefits them a lot more than it does us.

4. Finally the company's only significant competitor is Cisco (CSCO), and I would think, in this age of consolidations in tech, that Cisco will place a bid for this company in the near future.

Near-term risk

The lockup of initial share offerings to the employees and insiders expires on March 19th, which means employees may sell their shares out in the open market. I think that time will dictate a lot of the future movement of the stock. I doubt a lot of employees will sell their stock, because the potential for growth in this company is so much that the stock right now is definitely good to hold.

Taking all these factors into consideration, I would definitely buy RVBD for the long-term. I have some shares and will add to them if the stock goes south. Good luck !!!

RVBD 1-yr chart

Comments

[Jake Berzon:]

My contact at Cisco says that within a year Cisco routers will have all the functionality of the Riverbed boxes built in, completely eliminating the need for them. According to him, Cisco has developed this technology in house and are very unlikely to acquire Riverbed. Considering that RVBD is short on cash and is barely profitable, it is hard to imagine how this company will be able to survive if Cisco does not buy them out.

2008 Jan 28 01:46 AM

[User 161719:]

The bottom line is that Riverbed Steelhead appliances WORK! It's a great product. We have 4 Steelheads deployed and are planning on buying a lot more. The increase in throughput on your WAN is amazing.
As far as Jake Berzon's comment goes, I've heard my Cisco reps talking about this as well and have researched it on my own. If and "when" Cisco comes out with a comparable product, you can be SURE that it will be exorbitantly expensive and difficult to implement into your network. I'm not bashing Cisco. Just that I've worked with them long enough to know them. That's why I sold all my CSCO stock and bought RVBD (at 15.64.) Too bad I didn't sell at 51.84...... Oh well Riverbed's Steelhead appliances are a GREAT product and I'm glad I invested in the company.

2008 Mar 08 12:48 AM

[datasource:]

Berzon is an obvious basher (probable short seller) when he suggests that RVBD is "short on cash". If he would read their FS or listen to their conference calls, he would know that RVBD has about $245 Mil in Cash and No debt and is a young company with very early profitability.


On Jan 28 01:46 AM Jake Berzon wrote:

> My contact at Cisco says that within a year Cisco routers will have
> all the functionality of the Riverbed boxes built in, completely
> eliminating the need for them. According to him, Cisco has developed
> this technology in house and are very unlikely to acquire Riverbed.
> Considering that RVBD is short on cash and is barely profitable,
> it is hard to imagine how this company will be able to survive if
> Cisco does not buy them out.

2008 Apr 14 12:01 PM