A Case of Market Overreaction

It's not quite an earnings release, but it's pretty close.

Last night, telecommunications infrastructure provider Acme Packet (Nasdaq: APKT  ) released an update on what it expects for its third-quarter results, which aren't officially due out until Oct. 20. The gloomy update has investors spooked, as shares were down by as much as 17% today before closing off 5.5%.

Based on preliminary estimates, which technically are subject to change, Acme Packet now expects revenue to be roughly $70 million with non-GAAP earnings per share in the range of $0.20 and $0.22. Non-GAAP gross margin should land around 84%. The full-year outlook remains unchanged, with total revenues for 2011 expected between $315 million and $320 million, representing a growth rate of between 36% and 38%.

The estimates are below the consensus of analysts, who were expecting revenue of roughly $82.8 million and earnings per share of $0.30.

Acme Packet CEO Andy Ory commented: "While we remain confident in our second-half growth plans, our third-quarter results were adversely impacted by a very large opportunity at one of the two largest service providers in North America. We now expect this opportunity to close in the first half of the fourth quarter and we remain confident in our ability to execute on our full-year business outlook."

The company announced that it was selected to supply session border controllers for a Tier-1 service provider, which will help facilitate Voice Over Long Term Evolution. The service provider in question is AT&T (NYSE: T  ) and the win is huge, albeit slightly delayed. Both AT&T and Verizon (NYSE: VZ  ) are in the initial phases of rolling out their 4G LTE networks, and Acme Packet is poised to gain from the migration.

This is a classic case of market overreaction based on short-term expectations. The stock is selling off because a minor delay is pushing the order to next quarter. It's not as if Acme missed out on the order altogether. Fools with a long-term time horizon should look at this as a buying opportunity, since the current valuation is a steal for this Rule Breaking stock's growth potential.

Fool contributor Evan Niu owns shares of AT&T, but he holds no other position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of AT&T and Acme Packet. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 06, 2011, at 11:10 AM, Fleetwood60 wrote:

    APKT.....Remember these are opinions and the bears will want you to think the worst of this strong company using this over reaction position to their benefit. Manipulation occurs everyday; which is not right nor fair!....This definitely was an over reaction on this stock to sell. I feel sorry for the ones that panic during such an extreme over reaction that was caught in this un-justified sell-off. The only thing that has changed is that an order was postponed to a later date. NO ORDERS HAVE BEEN CANCELED.....APKT is still ranked #1 in its implementation. Financial positions do change and always will.....however this is not a negative position for APKT. Interpretation is the key. I am still long in this company stock and expect this companies stock to move forward in an upward tick the rest of the year. My position on this company is a strong buy! Its fundamentals are very strong.

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