Riverbed CEO: We Can Get Through This

Riverbed Technology has enjoyed one of the best-performing tech IPOs of the last two years. Sales of its networking gear that speed the delivery of bandwidth-hogging corporate applications have been soaring. After going out in September 2006 at $9.75, Riverbed shares steadily rose to a high of $52 last October. Since then, the stock has lost its oomph, falling about 60% to around $22 today.

Riverbed CEO Jerry M. Kennelly, a big friendly bear of a man who was a former executive at Inktomi, stopped by the BusinessWeek office last week to talk about his business and why he thinks Riverbed can keep growing through the telecom slowdown.

Will the slowing economy have an impact on the communications business?
I don’t know. There are reasons to be optimistic. We just had our biggest quarter ever.

Then why did your stock get crushed after the Feb. 6 earnings announcement, dropping 11%?
We gave our first ever-guidance. We matched earnings per share guidance for the year and raised our annual revenue guidance. But our first quarter earnings per share target was below guidance. Analysts thought we hired a bunch of sales people. But we just paid out larger sales commissions.

Cisco, the world’s largest maker of networking gear, just spooked the market by lowering its revenue guidance for the year. How is the slowing economy having an impact on your business?
We have a strong pipeline. It was the biggest pipeline in the history of the company. It’s a multiple of our next quarter’s sale goal.

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So you haven’t seen any softness?
We haven’t seen it yet. If we get through the March and June quarter we’ll be in good shape. We’re constructively paranoid and cautiously optimistic.

Why no impact yet?
We sell a product that’s useful to companies in hard economic times. It saves money and makes employees more productive. Compared to Cisco switches and routers, there is a big untapped market for this product. Everyone who needs a router or a switch already has one. They are selling into a mature market. If the economy sneezes they will catch a cold. We can dodge that bullet. We’re new and unsaturated. And it’s a cost-saving product.

What are the cost savings?
They come from consolidating servers in your data center, and because our machines provide greater throughput. We create free bandwidth through our compression technology. That saves money.

You have a lot of customers in the financial services industry, such as Goldman Sachs and Citigroup. Wouldn’t they cut back?
Banks don’t go to zero. They defer $10 million of a $100 million. You just have to make sure you are not in the deferred $10 million. Only 10% of our revenue comes from financial services. We’re very broadly dispersed. We can get through this.

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2 Responses to “Riverbed CEO: We Can Get Through This”

  1. Dean H. Johnson Says:

    Riverbed is not only a cost saving product but is also very easy to install and maintain. Although each company uses their own IT cost/benefit model, most IT managers should be a “hidden salesman” for this “very low project risk” product.

    Dean H. Johnson

  2. james avery Says:

    Why are we seeing so much of a drop in the share price since the CFO and CEO sold shares?????

    Why were the shares sold…….????

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