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On the 25th anniversary of Black Friday, major markets closed down. The Dow Jones dropped 1.88%, the Nasdaq fell 2.19%, and the S&P 500 dropped 1.89%. Riverbed Technology (NASDAQ:RVBD) was one of the few bright spots in the market, as it rallied over 10% to close at $23.06. Given its strong earnings and relative strength in the network technology space, Riverbed is a company investors should consider buying.

Strong quarterly results by Riverbed helped push shares higher. The company leveraged the customer base of its partners to sustain sales. Companies like AT&T (NYSE:T), Verizon (NYSE:VZ), IBM (NYSE:IBM), EMC (NYSE:EMC) and Hewlett-Packard (NYSE:HPQ) sell Riverbed products. In all, 95% of revenue came from indirect channels.

In its last quarter, Riverbed reported:

  • Revenue of $219 million, up 15% year-over-year
  • Operating margins of 29%, up from 23% last quarter
  • WAN optimization revenue growth of 9% from last year to $191, representing 87% of total revenue
  • Net income of $46 million, or $0.28 per diluted share, up 15% year-over-year

Riverbed provided a forecast that was higher than consensus:

  • Revenue forecast to be between $230 million to $236 million, compared to a consensus forecast of $232.6 million
  • Earnings forecast of $0.29 per share compared to a consensus forecast of $0.28 per share

Positive sentiment for stocks reversed to the downside. With technology semiconductor and networking companies typically selling-off faster than the market, a pull-back in Riverbed shares offers an entry point for investors. The five reasons to be bullish on the company are:

1) Corporate Demand

The corporate migration towards virtual data centers and hybrid cloud computing will continue even if the economy slows. Companies need to save money and need to improve networking performance on the cloud at lower costs. This positive demand trend will benefit Riverbed.

2) New Product Growth

New WAN optimization products, including Steelhead CX, Steelhead EX, and Granite are growing rapidly, but currently represent a small percentage of revenue. In the last quarter, Cascade grew 45% (year-over-year) to $17 million. These new products will become a greater percentage of total revenue in the future. More importantly, as sales slow for its core products, Riverbed has these new products to support future profit growth.

3) Strategic Partnerships

Mutually beneficial partnerships create awareness for all parties involved. Riverbed's platform leverages VMWare (NYSE:VMW) ESX server and vSphere vCenter. More recently, the company announced further integration of Cloud Steelhead with vCloud Director.

4) Revenue from Government

The looming fiscal cliff in the United States is not expected to impact sales to federal agencies. The reason is that the company succeeded in penetrating a greater number of federal agencies, helped by a mandate to by these agencies to migrate to Cloud data centers.

5) Strength in Europe

Companies like Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), and Intel (NASDAQ:INTC) all experienced weakness in Europe, but Riverbed was able to counter this negative trend. The company invested 1.5 years of effort to strengthen its sales in Europe. That investment helped Riverbed report stronger sales in the region.

Competitive Analysis

Riverbed has 50% of the WAN Optimization market. In comparison, Cisco (NASDAQ:CSCO) has about 22%, while Citrix Systems (NASDAQ:CTXS) has less than 10%.

Stock Performance

A performance comparison of Riverbed shares compared to VMWare, Cisco, and Juniper is illustrated below:

(click to enlarge)

(Source: Yahoo Finance)

Conclusion

Riverbed may potentially achieve gross margins of up to 75%. The company is hiring staff to help achieve this goal. Operating margins, which was 29%, could reach 30% or higher next quarter. Strategic partnerships with Juniper (NYSE:JNPR) and VMWare are also proving to be beneficial. The company spent time educating its sales staff, and its efforts paid off with higher revenue in the last quarter. The partnership with Juniper is helping to bolster cash flow.

In the near-term, if markets continue to weaken, Riverbed shares may also fall too, but the company's prospects remain bright. A pull-back gives investors a chance to average down or to start a new position at lower prices.

Source: 5 Reasons To Buy This Networking Company