VMware Hammered in After-Hours Trading

VMWare (VMW), one of the hottest IPOs of 2007, was crushed in the after hours Monday night (down 27%) after reporting 4th quarter earnings.

Revenue of $412 million came in $5 million shy of analysts estimates and their revenue forecast for 2008 was about $20 million beneath analysts estimates (VMW 4Q Earnings Release, Conference Call Transcript).

This kind of thing always strikes me as overkill. Because of a $5 million miss and a $20 million forecast shortfall next year, more than $10 billion in market value gets knocked off the stock. It doesn’t really seem proportionate.

The problem, however, is that the stock is just so pricey. It got so speculative and ridiculous, and now the air is coming out (VMW 6-Month Chart) of it.

All the high-fliers are now being held to a different standard. The momentum game is over - the rules have changed.

Disclosure: Top Gun has no position in VMWare (VMW) shares.

Comments

[DennisByron(Research2.0)]

It's not really the nickel miss or the lowered expecations for 2008, Greg. The institutions moved like a herd into VMware last summer and the herd provides cover as they bail out of what they have known to be bad investment for months. The statistics are just an excuse.

Analyst after analyst on the conference call whined, "But 50% annual growth really means only a 35% growth run rate by the end of 2008." If the fall of 2008 is like the fall of 2001 (the analogy many macroeconomic analyses are setting up), 35% growth rate next fall could be 35x software market growth.