Why Extreme Networks Stock Popped Today

The networking technology specialist delivered a solid quarterly beat.

Steve Symington
Steve Symington
Jul 31, 2019 at 4:38PM
Technology and Telecom

What happened

Shares of Extreme Networks (NASDAQ:EXTR) climbed 10.6% on Wednesday after the networking company announced stronger-than-expected quarterly results.

For its fiscal fourth-quarter 2019 (ended June 30), Extreme Networks' quarterly revenue declined 9% year over year to $252.4 million, translating to adjusted net income of $7.6 million, or $0.06 per share. Analysts on average were only looking for adjusted earnings of $0.04 per share on revenue closer to $245 million.

Man in suit blurred in background, pointing to bar/line chart indicating gains.

Image source: Getty Images.

So what

CEO Ed Meyercord credited the company's top-line outperformance to strength in the Americas region, as well as "early signs of demand" for its new Smart OmniEdge switching products. On the bottom line, Extreme Networks benefited from higher margins on new products, lower standard costs, and a higher mix of services-segment revenue.

The company also noted its recent agreement to acquire Aerohive Networks, which will provide significant recurring revenue. It will also catapult Extreme Networks into the No. 3 position among enterprise wireless LAN companies, as the industry approaches the transition to Wi-Fi 6 technology. The deal should close in early August.


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Now what

For the current first quarter of fiscal 2020, Extreme Networks expects revenue ranging from $235 million to $245 million. That would be roughly flat on a year-over-year basis at the midpoint, excluding $15 million in pro-rated revenue contributions from Aerohive. That should translate to adjusted net income per share of $0.03 to $0.07, excluding a $0.03-per-share negative effect from the Aerohive acquisition.

And for the full fiscal year 2020, Meyercord says the company is targeting organic revenue growth in the low single digits -- roughly in line with Wall Street's expectation for growth of about 2%.

Given Extreme Networks' relative outperformance to end fiscal 2019, and with shares down around 11% over the past year leading up to this report, it's hard to blame traders for bidding up the stock in response today.