Shares of business services provider Infoblox Inc. (BLOX) plunged 48.13% to $17.19 at the close of trading on Feb 11, after it drastically lowered its fiscal 2014 outlook citing weaker sales in January, fewer big-ticket deals and softer federal business. As markets reacted in dismay to the downward revision in the fiscal guidance, questions began to crop up regarding some fundamental issues within the organization. The lack of clarity without any follow-up call with investors has further compounded the problem and has sent the shares on a free fall. Let us summarize the turn of events owing to which the stock took a heavy beating.
In its preliminary second quarter fiscal 2014 results, Infoblox acknowledged that net revenue would come in at approximately $60 million to $61 million, well below its prior expectation of $65 million to $66 million. The top-line miss was attributed to three factors: lesser-than-expected January sales, fewer $1-million plus deals in the quarter compared with the historic average and weaker-than-expected revenues from Federal businesses due to a soft macroeconomic environment.
Net loss for the quarter is expected in the 8 cents and 10 cents band. The current Zacks Consensus Estimate is pegged at a loss of 4 cents. Consequently, this would come to a negative earnings surprise of over 100% for the company, a clear indication of a dearth of core growth drivers.
To make matters worse, Infoblox gave no explanation for the downward revision of fiscal guidance. The company pulled down its revenue expectation for fiscal 2014 from the prior range of $270 million to $276 million to $250 million to $254 million. The non-GAAP earnings guidance per share was drastically reduced from 44 cents to 54 cents to 30 cents to 34 cents. Analysts, however, had pegged the fiscal 2014 revenue at $274.6 million and non-GAAP earnings at 51 cents per share.
Until the final second quarter fiscal 2014 earnings results and the associated investor call details are out on Feb 26, any satisfactory explanation is not likely to emerge. However, with almost half of the market capitalization eroded and shareholder wealth plummeting significantly, the credibility of the company is seriously at stake. It would probably require some phenomenal performances to turn the tables.
Headquartered in Santa Clara, Calif., Infoblox offers Automated Network Control solutions that connect end users, devices and networks. These solutions enable about 6,900 enterprises and service providers to secure and scale complex networks, thereby reducing costs and increasing security, accuracy and uptime.
Infoblox presently has a Zacks Rank #3 (Hold). Players in the industry that are worth considering include Bottomline Technologies (de), Inc. (EPAY), Nuance Communications, Inc. (NUAN) and The Descartes Systems Group Inc (DSGX), each with a Zacks Rank #2 (Buy).
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