Will Acme Packet Ever Deliver?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Acme Packet (Nasdaq: APKT  ) has been on probation in my book lately, and last night's fourth-quarter earnings figures won't help the company in regaining my favor. This story has some history to it, so let's revisit.

A trip down memory lane
It all started in October, when the Voice-over-Internet-Protocol (VoIP) specialist slashed its third quarter guidance, sparking a mean sell-off. CEO Andy Ory said it was due to a big order delay from major buyer AT&T (NYSE: T  ) , but he was confident it would still be scored, reaffirming full-year guidance in the process. I had called the sell-off a case of market overreaction, since shifting an order from the third quarter to the fourth should have little impact on the long-term bigger picture, if one naively believes Ory's conviction.

The official third-quarter release should have seen no surprises, but shares sold off again even though the results matched up with the lowered guidance.

Fast-forward a couple of months, and Acme Packet comes out with yet another downward guidance revision, expecting fourth-quarter sales to be between $84 million and $86 million. This time around, Acme Packet also reduced its full-year earnings-per-share outlook from a range of $1.14 to $1.18 to a lower estimate of between $1.03 and $1.05.

The company chalked it up to "uncertainty in North American service provider markets," while Ory had tried to dispel fears that Verizon (NYSE: VZ  ) may also be cutting back on spending. If you thought Ory made a fool (with a lower case "f") of himself before, just wait until you get a load of the latest batch of digits.

Disappointment revisited
Revenue in the fourth quarter rose 18% to $83 million, with adjusted earnings per share coming out to $0.26, flat with the prior year. That means Acme Packet wasn't able to hit its already reduced revenue outlook.

For the full year, revenue rose by a third to $307.3 million, but profit came up short. Acme Packet pocketed $1.02 per share in adjusted earnings, telling a similar story as its reduced guidance. I'd always liked Acme Packet's position in providing the session-border controllers that make VoIP happen, but its recent track record of execution is nothing but disappointing.

The results look particularly bad when you consider that AT&T's failed takeover of T-Mobile was supposed to be freeing up its capital spending budget, to the joy of network-equipment providers. It's a little early to tell if Ma Bell's actually been opening its wallet more after its AT&T-Mo dreams were squashed, but if it is, those dollars don't seem to be coming to Acme Packet, because even Acme's guidance was soft.

Wait and see
Full-year 2012 profit is expected in the range of $0.96 to $1 per share, which doesn't quite compare to the $1.23 per-share profit that analysts are looking for. Ory said that Acme didn't meet its own expectations in 2011 "due to underperformance in the North American service provider market" (sound familiar?), as capital expenditures slowed in the tail end of the year.

He also added that he doesn't expect the first half of 2012 to be much better, since there is global precariousness around when voiceover LTE will be deployed. He again expressed his confidence that Acme Packet will capitalize as LTE networks begin to roll out all over the world.

I agree with Ory that as telecommunications infrastructure migrates towards 4G LTE (although many emerging markets are still boarding the 3G boat), Acme should see some opportunities. The problem is that Ory has lost some credibility by exuding confidence recently, claims followed by disappointing results. The opportunity is there, but can Acme Packet deliver and execute?

I'm moving to more of a neutral stance on Acme Packet, due to some of its missteps and Ory's misplaced recent confidence. I had previously given Acme Packet an "outperform" CAPScall, but I'm ending that pick today with a -12 score until this picture clears up a bit. Acme Packet still has some potential, but I'll be waiting on the sidelines to see if it can start delivering more reliably.

The inevitable shift to 4G LTE is just one aspect of the booming mobile revolution. Acme Packet doesn't seem to be the most promising way to play the massive shift that will be The Next Trillion Dollar Revolution. The Motley Fool has just released a new report on one company powering this mobile revolution from the inside out that also taps into China's explosive growth. Get your copy now -- it's free.

Fool contributor Evan Niu owns shares of AT&T and Verizon Communications, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Acme Packet. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 03, 2012, at 10:05 PM, Parkite wrote:

    How do you explain today's reaction to acme? By the time you get off the sidelines, it will be to late. You pay a high price for a cheery consensus. Good luck with T & VZ.

  • Report this Comment On February 03, 2012, at 11:57 PM, TMFNewCow wrote:


    You're right that consensus estimates aren't particularly important, but Acme missed its own guidance too. I still like APKT, but with some reservations.

    Btw, T & VZ are just dividend picks for my daughters educational savings account.

    Foolish best,

    -- Evan

  • Report this Comment On February 04, 2012, at 9:47 PM, Parkite wrote:

    They missed revenue by $1m. Immaterial. There revenues are lumpy due to very large customers and their indirect distribution channel. Not every company fits in neat 90 day periods.

    I think your daughters' education funds are safer in apkt than t or vz. T and vz are 2 of the worst run companies I know of in any industry. They only survive due to their sheer size.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1773331, ~/Articles/ArticleHandler.aspx, 10/23/2016 5:00:42 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
APKT.DL $0.00 Down +0.00 +0.00%
Acme Packet CAPS Rating: ***
T $37.49 Down -1.16 -3.00%
AT and T CAPS Rating: ****
VZ $48.20 Down -0.94 -1.91%
Verizon Communicat… CAPS Rating: ****