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Riverbed's Diversification Efforts Aren't Working

David Hernandez profile picture
David Hernandez


  • Riverbed's revenue grew at a CAGR of 27.5% from 2009-2013. However, revenue growth has slowed drastically in recent years.
  • The company's growth is being impacted by the decline of the WAN optimization market. The WAN optimization market is expected to continue to decline.
  • Riverbed's application performance management revenue has started to slow despite strong market growth. This is due to Riverbed suffering from subpar sales execution.
  • Management has grown ADC revenue in line with the industry's growth. Yet, Riverbed will have a difficult time outpacing the ADC market's growth due to a very competitive market.
  • Riverbed has expanded into new markets. However, Riverbed is going to under perform due to poor sales execution, a declining mature market, and an intensely competitive market.

Riverbed Technology, Inc. (NASDAQ:RVBD) is a provider of WAN optimization, application performance management, and application delivery controller solutions. Over the last few years, Riverbed's revenue growth has been strong. From 2009-2013, revenue grew at a CAGR of 27.5%. Yet, Riverbed's revenue growth has slowed in recent years. In 2014, revenue growth was 6.7% for the first half and 5.6% in Q2. Additionally, revenue growth in 2013 was only 5.3% after removing OPNET's (acquisition) revenue contribution. Riverbed's slow growth is being caused by several factors. They have had trouble with sales execution especially in one market segment. The company's subpar sales execution is impacting their performance management revenue the most. The application performance management or APM market is expected to grow double digits but Riverbed's performance management revenue growth has slowed to the mid-single digits. The slow growth is despite having a top quality application performance management solution. Riverbed generates 72.3% of revenue from the WAN optimization market. Yet, this market has been declining and is expected to continue to decline. The company also supplies an application delivery controller or ADC. Riverbed's ADC revenue grew 6% in Q2 which is consistent with the overall industry's growth. Yet, Riverbed will have a very difficult time outpacing the ADC industry's growth due to a very concentrated market environment.

Market Growth

Riverbed operates in three main markets. Two of these markets are expected to grow over the next several years. The Application Performance Management Software market is expected to grow at a CAGR of 16.8% until 2018, according to Research and Markets. The Application Delivery Controller market is expected to grow at a CAGR of 8.13% until 2018, according to TechNavio. In Q2 2014, these market segments contributed 27.7% to revenue. These markets are growing fast but Riverbed is facing unique challenges in both markets. Riverbed's main contributor to revenue

This article was written by

David Hernandez profile picture
I have spent 7 years investing. Seven years isn't a long time but I have acquired an enormous amount of experience. My 7 years of experience has resulted in a deeper understanding of the investment process and financial markets. I focus on a company's business model, industry positioning and valuation. These factors help discover companies built for long term success. Investing requires constantly learning and acquiring new skills. As a result, I am pursuing the Chartered Financial Analyst designation.

Analyst’s Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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