I play Sudoku and Calcudoku to relax. Books that don't make me think go straight back on the shelf. I'd love to meet Warren Buffett or Benjamin Graham for an enlightening chat -- but Nikola Tesla or Richard Feynman would tickle my fancy even more (by time machine or by paying a safe round-trip visit to the afterlife -- either way, that'd be pretty cool).
Since I like to have my brain tickled, it's a bit of a thrill to see Acme Packet (Nasdaq: APKT ) beating analyst targets last night -- and the stock still fell through the floor to the tune of a 20% plunge.
The stock recovered a fair bit after its early lows, but how did that happen?
The mystery isn't quite as obscure as I'd like. Yes, the Internet video chat and telephony specialist just edged out the Street's revenue target for the second quarter with a $67.6 million performance while hitting the $0.13 non-GAAP earnings-per-share estimate right on the nose. That's technically a beat, but only by the smallest of margins. And you know the old saw: Past performance is no indication of future results.
And that's where Acme Packet falls down -- hard. Management issued full-year guidance far below the current analyst sentiment. Acme is now aiming for about $273 million in full-year sales and $0.45 of non-GAAP earnings, plus or minus a few percent. But the Street wanted $296 million and $0.70 per share, respectively. As disappointments go, this is a big one.
Management blames its weak projections on soft orders from North American mobile service providers, namely AT&T (NYSE: T ) and Verizon (NYSE: VZ ) . Both of Acme's largest clients are planning voice services over LTE 4G data connections (as opposed to handling voice calls via one channel and data on another, as they do now), but CEO Andy Ory doesn't see any real orders flowing from that trend until 2013.
Investors are taking Acme's market view as a negative for voice over IP competitors. In particular, Sonus Networks (Nasdaq: SONS ) dropped 5% on Acme's news. On the other hand, traditional voice equipment builder Tellabs (Nasdaq: TLAB ) jumped 11% as this signal of near-term telecom investment shifts meshed with Tellabs' own mildly positive earnings report.
Mystery solved, then. Acme really is under the gun, at least for the rest of 2012. Shares have lost 75% of their value over the last 12 months, and it looks like investors have more pain coming up ahead.
The company is profitable but often reports negative free cash flows. The balance sheet holds $367 million in cash equivalents and no long-term debt, which gives management some breathing room for the 2013 story to play out.
So if you believe in Acme's long-term opportunity, this is where you'd start a position at very low prices. If you don't, the mobile market offers plenty of lower-risk alternatives. I'm on the sidelines for now, as a real-money position in Sonus gives me enough exposure to next-generation network technologies. If you want a broader picture of the smartphone revolution, click below to find out why investors are so excited about this exploding trillion-dollar revolution.