What happened

Shares of Harmonic (HLIT 0.92%) are falling today, down 9.5% as of 1:57 p.m. ET.

Late Monday, the company reported better-than-expected earnings results for the third quarter, but the stock still slumped on lower revenue guidance for Q4. The shares have significantly outperformed the broader market this year, up 19% year to date. 

So what

Harmonic delivered revenue of $155.7 million, exceeding analysts' estimates for $152 million. The company also beat estimates on the bottom line, with earnings per share of $0.13 coming in ahead of the $0.10 consensus estimate.

Harmonic's outlook for fourth-quarter revenue to be between $151 million and $165 million was 1% lower than previous guidance at the midpoint of the range. The company also raised its forecast for profitability, reflecting higher expected gross margin for broadband and video. This continues the positive margin trend in video over the last few years. 

Now what

The stock has outperformed the market over the last year on the back of strong adoption of Harmonic's video-streaming technology for live sports and software-based cable solutions. The accelerating adoption of broadband and video-streaming services is a tailwind that management expects to deliver more growth over the next three years.

Harmonic's total backlog and deferred revenue stood at $490 million at the end of the third quarter, a year-over-year increase of 47%. This is evidence of continued demand from broadband customers and growing demand for the company's video software-as-a-service business.

Harmonic faces stiff competition from Amazon's cloud services business in video and Cisco Systems on the broadband side, so the investors are probably looking at any hint of weakness in guidance as a warning sign. Still, management believes the company can achieve revenue of at least $825 million by 2025, which would represent a compound annual growth rate of 34%. That would be enough growth to justify the stock's current valuation.