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Optical/IP

Riverstone Slapped in Face of Good News

Riverstone Networks Inc.’s (Nasdaq: RSTN) stock price took a major hit today after the company announced relatively positive third-quarter earnings (see Riverstone Reports Q3, Buys Startup).

The stock was trading at $1.93 a share, down $0.77 (28.54%), early this afternoon.

Revenues for the third quarter of fiscal 2003 were $13.8 million, an increase of 29 percent over revenues of $10.7 million in the prior quarter. The company also reported a GAAP net loss for the third quarter of $27.8 million, or $0.23 per share -- over 50 percent less than its loss last quarter.

All in all, it seems Riverstone had a respectable quarter -- given, of course, the ongoing gloom in the telecom sector. So why the big dip in its stock price today?

At first glance, it looks like the end-of-year comparisons may have spooked investors. Overall, Riverstone’s revenues have declined about 77 percent from last year.

Still, that doesn't seem enough to account for today's dip. After all, it's well known that carriers drastically cut spending this year, affecting all networking companies. Modest gains showing up now could even indicate the worst is over, analysts say. Ciena Corp. (Nasdaq: CIEN) reported last week that its revenues have declined roughly 80 percent since last year, but like Riverstone, it saw quarter-over-quarter growth (see Ciena Improves Outlook). Its stock went up nearly 20 percent the day its earnings were released.

So why didn’t Riverstone's?

At least one analyst says the answer may have little to do with the company's earnings. According to Reginal King, an analyst with WR Hambrecht + Co., Riverstone shares had been trading well below the company's net cash value for most of the quarter. This led to investors scrambling to buy up the discounted shares over the last few months.

For the uninitiated, net cash value is the actual cash the company has on hand, minus its debt. King calculates Riverstone’s net cash value to be around $1.92 per share.

The rush to buy cheap Riverstone shares caused its stock price to jump from a low of $0.47 per share on October 9th to a high of $2.86 on December 11th. Now, King surmises investors may have taken last night's good news as a signal that it's time to cash in.

The focus on net cash value indicates investors have other reservations about Riverstone, King adds. The company didn’t give any guidance for the fourth quarter, something investors don’t like. And though it's managed to make up for a decrease in service provider revenue by addressing high-end enterprise customers, it still lacks a coveted win with a large incumbent carrier in the United States.

“They can sell to all the China Telecoms and Telefonicas they want, but until they win a big RBOC [regional Bell operator] contract, the stock will still bounce around net cash value,” says King.

King says it's important for Riverstone to announce an RBOC customer to show that its products compete against bigger routing companies like Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR), which have already announced contract wins with RBOCs.

Cisco recently announced a deal with SBC Communications Inc. (NYSE: SBC) for its core routing gear, and it subsequently announced a preferred supplier agreement with the carrier (see Cisco Lands SBC and Cisco and SBC: What's the Big Deal?). Juniper has announced a deal with BellSouth Corp. (NYSE: BLS) (see Juniper's Good News Fails to Impress). And both Cisco and Juniper are rumored to be getting a piece of a big contract with Verizon Communications Inc. (NYSE: VZ) (see Verizon Talk Stokes Stocks and Juniper Still Working Verizon Deal).

Riverstone's also taken on an acquisition, something investors routinely question. It intends to buy privately held Pipal Systems, a 42-employee networking company based in Santa Clara, Calif., for 8 million shares of Riverstone common stock and $3.5 million in cash. Execs said Riverstone would take on about $6.5 million in debt and $5.8 million in compensation and bonus arrangements for Pipal employees as part of the deal.

— Marguerite Reardon, Senior Editor, Light Reading
www.lightreading.com
whyiswhy 12/4/2012 | 9:09:26 PM
re: Riverstone Slapped in Face of Good News Beware of getting Wallstreet attention.

-Why
VolTrdr 12/4/2012 | 9:09:21 PM
re: Riverstone Slapped in Face of Good News LR,

typo....$.47 to $2.86 is a 608% return, not 84%.
mrand 12/4/2012 | 9:09:16 PM
re: Riverstone Slapped in Face of Good News > typo....$.47 to $2.86 is a 608% return, not 84%.

Close, but still not correct... you don't get to count the original 0.47, so it's a 508% return!

BobbyMax 12/4/2012 | 9:09:14 PM
re: Riverstone Slapped in Face of Good News There is so much competition in the Edge Router field that it is almost impossible for RiverStone to compete. RiverStone in absense of any significant sale emphasized selling some routers to Korea Telecom to facilitate video game activity for the school children. I do not see what RiverStone has to offer in terms of features and value added features.

It is a Wall Street game of tking the shares up and down so that it clients can make money. It can be trusted with iots analysis.

Please look at the performance of Xerox, Unisys, and Novel for the past years. Xeros, for example, would never trade beyond its current value. The shareholders are the losers while its management is geting bonuses, high salaries and stock options. There is awidfe scale corruption in companies and nobody is paaying any attention.
reoptic 12/4/2012 | 9:09:13 PM
re: Riverstone Slapped in Face of Good News Company running 10-12M a quarter in sales but valued north of 400M when you add stock and debt. That's 10x revenues for an unprofitable company. Seems like it has room to fall.
l2d 12/4/2012 | 9:09:06 PM
re: Riverstone Slapped in Face of Good News I didn't see any mention that they refused to provide financial guidance for future quarters. I suspect most investors read this as: "if they don't have anything good to say, they won't say anything at all!" Sure makes me think that way.
bucardo 12/4/2012 | 9:09:06 PM
re: Riverstone Slapped in Face of Good News GǣThey can sell to all the China Telecoms and Telefonicas they want, but until they win a big RBOC [regional Bell operator] contract, the stock will still bounce around net cash value,Gǥ says King

King says it's important for Riverstone to announce an RBOC customer to show that its products compete against bigger routing companies like Cisco and Juniper


???? China Telecom and Telefonica size is on par with RBOCs. Riverstone competed there with Cisco, Juniper, Nortel, ... Plus there are more PTTs (BT, FT, DT, KPN, Telstra, ...) than RBOCs, with more money to spend. Those sentences don't make much sense.

Bucardo
metroman 12/4/2012 | 9:09:04 PM
re: Riverstone Slapped in Face of Good News People seem to have ignored this company Pipal? Any knowledge available on them?

I here they are building an MPLS/Ethernet box but this is what RSTN already do?

Metroman

mpl 12/4/2012 | 9:08:45 PM
re: Riverstone Slapped in Face of Good News what value do you give to their cash?

at 50 cents on the dollar the company was worth more than 47cents a share (their October low)
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