Extreme Networks Closing in on a Billion in Revenues, Analysts review and Target

Extreme Networks, Inc. (NASDAQ: EXTR) provides software-driven networking solutions for enterprise customers worldwide. It designs, develops, and manufactures wired and wireless network infrastructure equipment; and develops the software for network management, policy, analytics, security, and access controls.

The company announced in August that it is now positioned as a Challenger by Gartner, Inc. in the Gartner Magic Quadrant for Data Center Networking, July 11, 2018. Prior to 2018. Extreme Networks appeared as a Niche Player in the Gartner Magic Quadrant for Data Center Networking for several years.

Extreme completed its acquisition of Brocade Communications Systems, Inc.’s data center networking business, its third in a series of acquisitions since October 2016. Extreme was also named a Leader for the first time in the July 2018 Gartner Magic Quadrant for the Wired and Wireless LAN Access Infrastructure.

 

According to CEO Ed Meyercord “We are resetting expectations for our data center business and are taking swift action to rebuild our sales pipeline after a disappointing fiscal fourth quarter, while celebrating some key wins. … We are now undertaking an initiative over the next six months to bring our portfolio together and consolidate distribution to improve channel efficiency. We expect this change to impact our revenues for the first two quarters of fiscal 2019 by approximately $30 million to $40 million as compared with prior full-year outlook.”

 

About

Extreme Networks, Inc. provides software-driven networking solutions for enterprise customers worldwide. It designs, develops, and manufactures wired and wireless network infrastructure equipment; and develops the software for network management, policy, analytics, security, and access controls. The company offers edge/access Ethernet switching systems that deliver Ethernet connectivity for edge of the network; aggregation/core Ethernet switching systems for aggregation, top-of-rack, and campus core environments; data center switching systems for enterprises and cloud data centers; and wireless access point products, as well as distributed Wi-Fi networks. It also provides ExtremeControl, a network access control solution that allows the enterprises to unify the security of their wired and wireless networks with visibility and control over users, devices, and applications; and ExtremeAnalytics, a network-powered application analytics and optimization solution, which captures, aggregates, analyzes, correlates, and reports network data that enables in decision making and enhancing business performance. In addition, the company offers ExtremeGuest and ExtremeLocation, which are cloud services that enable enterprises to incorporate location-based services; and ExtremeCloud, a wired and wireless cloud network management solution, which offers visibility and control over users and applications. It markets and sells its products through distributors, resellers, and field sales organizations. The company serves enterprises and organizations in education, healthcare, manufacturing, hospitality, transportation, and logistics, as well as government agencies, private cloud data centers, and universities. Extreme Networks, Inc. was founded in 1996 and is headquartered in San Jose, California.

 

 

Analysts

5 Wall Street analysts have issued ratings and price targets for Extreme Networks in the last 12 months. Their average twelve-month price target is $12.20, suggesting that the stock has a possible upside of 103.67%. The high price target for EXTR is $17.00 and the low-price target for EXTR is $6.50. There are currently 2 hold ratings and 3 buy ratings for the stock, resulting in a consensus rating of “Buy.”

Date                    Brokerage                                       Rating                                Price Target

8/9/2018            DA Davidson                                  In-Line ➝ Buy                 $13.00

8/9/2018            JMP Securities                               Market Outperform               $12.00 ➝ $9.00

8/9/2018            Cowen                    Outperform ➝ Market Perform              $16.00 ➝ $6.50

8/8/2018            Needham & Company LLC           Buy ➝ Hold

 

Financial review

Fourth Quarter Results:

Fourth quarter revenue was $278.3 million, or an increase of 56% year-over-year.

GAAP gross margin for the fourth fiscal quarter was 54.0%, a reduction of 340 basis points year-over-year, and non-GAAP gross margin was 57.6%, an increase of 10 basis points year-over-year.

GAAP operating margin for the fourth fiscal quarter was (1.2%) and non-GAAP operating margin was 9.8%, compared to 8.8% and 12.8%, respectively, year-over-year.

GAAP net loss for the fourth fiscal quarter was $5.6 million, or $(0.05) per basic share, a decrease of $18.8 million and $0.17 per basic share, year-over-year. Non-GAAP net income was $24.0 million, or $0.20 per diluted share, an increase of $3.6 million and $0.02 per diluted share, year-over-year.

Fiscal Year Results:

Fiscal year revenue was $983.1 million, or an increase of 62% year-over-year.

Fiscal year GAAP net loss for the fiscal year was $46.8 million, or $0.41 per basic share, an increase of $45.0 million and $0.39 per basic share, year-over-year. Non-GAAP net income was $78.0 million, or $0.65 per diluted share, or an increase of $20.4 million and $0.13 per diluted share, year-over-year.

For the current quarter ending in October, Extreme Networks said it expects revenue in the range of $230 million to $240 million.

 

Stock influences and risk factors

If they fail to meet their payment or other obligations under their Credit Agreement the lenders under such Credit Agreement, as amended, could foreclose on, and acquire control of, substantially all of their assets.

They depend upon international sales for a significant portion of revenue which imposes a number of risks on the business.

They purchase several key components for products from single or limited sources and could lose sales if these suppliers fail to meet their needs.

Intense competition in the market for networking equipment and Cloud platform companies could prevent the company from increasing revenue and attaining profitability.

 

Stock chart

On Friday, September 7, 2018, EXTR shares closed at $5.99 per share on traded volume of 1.8 million shares. The current RSI (14) is 34.70

At $5.99, EXTR shares are trading below their 50 DMA and 200 DMA of $7.53 and $10.45 respectively.

 

 

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