Infoblox Inc: Recent Sell-Off Creates Buying Opportunity
By: Mani
November 29, 2013 12:58 PM
Shares of Infoblox, Inc. (NYSE:BLOX) fell as much as 29 percent after its lower-than-expected second quarter outlook, which triggered a sell-off and sent the stock to a three-month low.
For the second quarter, Infoblox guided adjusted earnings of 9 to 11 cents a share, with revenues between $65 million to $66 million. Analysts were expecting earnings of 12 cents a share on revenues of $67.04 million for the quarter.
The key question now is whether there has been a change in momentum with its business into fiscal 2014. The answer seems to be no as key demand metrics like day sales outstanding, customer adds, and deferred revenue were intact, and the recent sell-off is overdone.
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After a year of strong revenue upside that led to 35 percent product growth, Infoblox reported an in-line October quarter on revenue along with solid EPS upside driven by strong product margins.
However, after a solid fourth quarter finish, it appears that some pipeline rebuild in the first quarter, and weakness in Asia-Pacific were the main culprits preventing better revenue upside.
Sterne Agee analyst Alex Kurtz is of the view that there wasn't a negative change in the company's trajectory toward 20 percent-plus product growth for fiscal 2014.
Santa Clara, California-based Infoblox continues to grow customers at 200 per quarter, and now the count comes to 6,900, which provides a broader base to drive core IPAM (Internet Protocol Address Management), as well as DNS Firewall revenue.
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More specifically, only 150 existing customers have added DNS Firewall and there is vast scope for improving this number. The company's lower-ASP Trinzic 100, suitable for branch deployments, and the security-focused DNS firewall should help it to upsell into the installed base and to address rising DNS security.
The company also unveiled the new DNS Firewall – FireEye Adapter, which combines Infoblox DNS Firewall and the malware protection system from FireEye Inc. (NASDAQ:FEYE) to protect against Advanced Persistent Threats (APTs).
Meanwhile, deferred revenue still grew faster than revenue at 32 percent versus 28 percent. Large deal transactions were flat quarter over quarter, but in dollar amount aggregate slightly down; suggesting that a few bigger deals might have flushed out during the fourth quarter compared to the first quarter, and could have accounted for some of the lack of upside surprise.
In addition, product gross margins performed well at 79.2 percent and the company continues to drive strong operating margin results, at 12.2 percent versus guidance of 8-9 percent.
The company put out a positive tone, along with maintaining fiscal 2014 revenue guidance of $270 million to $276 million. The company sees non-GAAP earnings of 44 to 54 cents a share and non-GAAP operating margin of 10.5 to 12.5 percent. Analysts, polled by Thomson Reuters, currently expect earnings of 52 cents a share on revenue of $274.52 million.
Moreover, Infoblox is well positioned to leverage its technology leadership by expanding solutions in the areas where CIOs are investing today while accelerating the market's awareness and adoption of its automated network control solutions.
As a result, though the company may have guided second quarter lower than the Street's expectations, the total available market, security products and installed base across 6,900 customers should provide enough opportunities to boost product revenue in the second half of 2014.
Thus, the sell-off in BLOX shares creates a nice buying opportunity.
