Riverbed rides WAN optimization wave; May eye cloud soon

One of the hottest tech companies on the planet focuses on an acronym---WAN---that has largely flown under the radar. No more. Riverbed's third quarter results last week has everyone yapping about wide area network optimization.

One of the hottest tech companies on the planet focuses on an acronym---WAN---that has largely flown under the radar. No more. Riverbed's third quarter results last week has everyone yapping about wide area network optimization.

Who would have thought?

Nothing like strong financial results, a tuck-in acquisition, a peg to the hot app market and a stock split to get things moving.

Riverbed last Thursday reported third quarter earnings of $13.9 million, or 18 cents a share. Non-GAAP earnings were $26.6 million, or 34 cents a share. Revenue for the third quarter was $147.8 million, up 45 percent from a year ago. Wall Street was expecting earnings of 28 cents a share on revenue of $135.5 million.

In addition, Riverbed, which competes with Blue Coat Systems among others, raised its outlook for the fourth quarter, projecting $155 million to $158 million in revenue.

The company is delivering growth---something lacking in a lot of firms these days. And that growth can continue for the foreseeable future. Simply put, any company with two offices connected by a WAN is a potential Riverbed customer. Jerry Kennelly, CEO of Riverbed, said WAN optimization deployments are accelerating. Meanwhile, Riverbed acquired CACE Technologies. That deal is expected to take Riverbed into the applications aware network performance management market.

In a nutshell, CACE captures data packets and provides analysis software to make networks perform better.

So where's Riverbed heading? Analysts are obviously sold. They have been tripping over each other to upgrade shares of Riverbed.

Kennelly said on a conference call:

Some of our biggest deals during the quarter were household names, who required WAN optimization to make their global IT infrastructure function at the highest level. These customers span financial services, healthcare, manufacturing, government, and other verticals. We continue to extend our lead against the competition.

Kennelly reckoned that Riverbed has 40 percent of the WAN optimization market. He also said that WAN optimization is huge priority for 2011, a point also made by various surveys. Kennelly said:

Deployments are getting larger. And what's most important, is for us to get into customers that have high potential. And we're getting into customers with high potential. This is an 18-month high, for new enterprise customers. Adding new, big enterprise customers was very strong for us. So it's that -- get into customers with high potential.

Despite that potential, Riverbed's deal size remains under $100,000 for most customers although it does land a few $1 million deals each quarter.

What's next? A third of Riverbed's revenue comes from its Steelhead 7050 datacenter appliance. In July, Riverbed rolled out its virtual WAN appliance in July. That appliance will ride shotgun in VMware environments.

In other words, all the parts are lined up for Riverbed to launch a cloud storage product next month. Wedbush analyst Rohit Chopra said in a report:

In November, we think the company will release we believe the company will unveil a cloud storage acceleration product as well as a software-only version of its WAN appliance for public cloud deployments. We think the recently released products are already having a positive impact by improving margins and deal sizes.

Riverbed holds a cloud powwow Nov. 10 in New York.

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