Last week Acme Packet (NASDAQ:APKT) reported its adjusted earnings met and that revenues surpassed Wall Street's expectations. The stock rose 10% in after hours trading only to be doused the next day. I've been accumulating shares of Acme Packet between $25 - $27 and thought they'd thrown a bone my way when they crossed the tape at $31 right after the conference call. However, the stock has continued to hover in the $26 range for the past week.
I consider this an outstanding buying opportunity of Acme Packet for a multitude of reasons. It's no secret I'm gung-ho on the wireless broadband sector. Last month I wrote about the company's inroads in Voice Over LTE and I'll briefly update you about that, but some of this posting will discuss Acme's recent purchase of IPTEGO, which puts them front and center in the Deep Packet Inspection arena.
What hit me right between the eyes when reading the press release about the acquisition was the company description: "IPTEGO's Palladion software optimizes next-generation IP communications networks, enabling customers to rapidly troubleshoot customer experience issues down to the individual session level, proactively identify and isolate communications network faults and events and detect and prevent fraudulent activities in the network."
It sounded familiar to the business description of Allot Communications (NASDAQ:ALLT), a red hot wireless pure play I've been following ever since I blogged about it in early March. Nowhere in the missive, or in the latest conference call did Acme's management mention Deep Packet Inspection. Industry insiders probably took it for granted, but as a layman, I didn't have a clue. However, when surfing to the IPTEGO website, I came across a document that specifically states: "Palladion goes beyond the deep packet inspection solutions typically found in today's VoIP networks ..." That iced the cake.
Here are some of the takeaways from the conference call that maintained my enthusiasm for this multifaceted telecom infrastructure play. The orator is CEO Andrew Ory. Some of the paraphrased quotes come from the presentation and some are from the Q&A session:
- "We expect to deliver sequential growth in each of the remaining quarters in 2012. We are reaffirming our earlier business outlook of approximately 10% revenue growth in 2012. It is our intention to improve visibility in the back half of the year."
- "For the better part of 10 years, our customers have been primarily wireline and cable service providers. Now in our second decade, we are expanding our focus and investing in the strongest drivers of future market growth, specifically enterprise and wireless."
- "We continue to see evidence of our expanding market share. According to a recent report issued by Infonetics Research, our share of the service provider SBC market remained strong at 57% in 2011. A similar study of the enterprise market indicated that our share of that market had expanded to 34% in 2011, making us the leader in that market as well."
- "The combination of our session delivery network solutions with IPTEGO's real-time intelligence engine will enable customers to move beyond individual element management and give them real-time network-wide visibility and analytics into their multi-vendor IP communication network."
- We plan to sell the IPTEGO Palladion software suite alongside our current product portfolio and will offer it to service providers and enterprise customers through existing IPTEGO and Acme Packet channel partners, as well as through direct sales."
- "SIP trunking is strategic to Acme Packet because SIP trunking is what leads the way and enables the transformation for the enterprises to communicate, change the way they communicate. And this is why IPTEGO is so important to us."
Most of the bullet points are self explanatory except for the last paragraph on SIP trunking. According to Wikipedia: "SIP trunking is a Voice over Internet Protocol (VoIP) and streaming media service based on the Session Initiation Protocol (SIP) by which Internet telephony service providers (ITSPs) deliver telephone services and unified communications to customers." As stated in the conference call, "SIP trunking should be one of the main growth drivers for Acme Packet this year."
You can go on and on about the technology Acme Packet supplies to governments and conglomerates, but what's important to remember is that there is an ever-increasing volume of binary data flying through the airwaves these days. There's a wholesale shift in the way that telecommunications is changing. It's like going from the telegraph to the telephone. Acme Packet plays a big part in making that happen.
One of the big knocks on the company and probably why it rubbed investors the wrong way (the stock has dropped from $85 to $25), was their limited geographic range. Previously, they were constricted to do most of their business in Europe and the Untied States. That's all changing. They are in the process of crisscrossing the globe. This is best exemplified by Acme Packet Senior Vice President Seamus Hourihan as he discusses the VoLTE deployment opportunities:
"The first one out of the gate would be MetroPCS (PCS). It will be starting in the second half of this year. There will be a few maybe toward the very end of this year and then there's some that are 2013. There's actually a few that are early 2014. The projects that we're in are equally distributed between North America, Europe and Asia. Relative to the last call, we added two new projects that we're engaged with, both of those were in Asia, for example. So that's the major change in terms of our engagements around voice over LTE since our last call."
Let's cut to the chase and get to the numbers. If you get excited about the thrill of the hunt, this sleeper stock could go from fizzle to sizzle in the next 12 months. Average consensus earnings estimates for 2012 is $.94/share. For 2013, that number jumps to $1.28. That gives us P/E Ratios of 28 for this year and 20 for 2013. This is a bargain going forward and although the growth rate for next year is expected to be 36%, this may prove conservative.
Disclosure: I am long APKT.