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Why Extreme Networks, Inc. Stock Is Plunging Today

By Anders Bylund – May 9, 2018 at 4:30PM

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The network equipment specialist hit some speed bumps on its way through integrating several large acquisitions, with deleterious effects on the company's third-quarter results.

What happened

Shares of network equipment maker Extreme Networks (EXTR 1.16%) are having a rough Wednesday. The stock opened 26.8% lower today, following last night's release of disappointing third-quarter results.

So what

In the third quarter of fiscal year 2018, Extreme Networks saw sales rising 76% higher year over year to land at $262 million. On the bottom line, adjusted earnings jumped 60% higher and stopped at $0.16 per share. Analysts had been looking for earnings of $0.21 per share on revenues in the neighborhood of $268 million, so the company fell short of all the headline targets.

Close-up shot of a black and yellow speed bump with another one in the background.

Image source: Getty Images.

Now what

Extreme Networks's sales growth comes from several acquisitions that closed in 2017. This quarter's negative surprises largely stem from the tricky process of integrating several large business operations into a cohesive whole. The company has focused on integrating the back-end systems of Extreme, Avaya, and Brocade into a single platform before turning their sights to more business-forward goals. As a result, the pipeline of incoming orders, contracts, and marketing efforts sputtered in the third quarter.

Management hopes to kick-start these stalled processes now that the back-end systems are all in place. But today, Extreme Networks' stock is trading roughly flat with its year-ago prices and 44% below its 52-week highs. Investors are looking for real-world progress here, not settling for promises of a better tomorrow.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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