Shares of Extreme Networks (EXTR 2.38%) had a bad day on Wednesday. The maker of cloud-based networking solutions posted robust results for the first quarter of fiscal year 2024, ended Sept. 30, but with next-quarter guidance far below Wall Street's consensus views. Extreme's stock fell as much as 20.5% on the news, closing Wednesday's trading at a 13.4% loss.
Extreme Networks' Q1 by the numbers
Extreme's first-quarter sales rose 19% year over year, landing at $353 million. Your average analyst would have settled for roughly $347 million. On the bottom line, adjusted earnings stopped at $0.35 per diluted share -- up from $0.20 per share in the year-ago period. Here, the analyst consensus stood at $0.32 per share. So far, so good.
However, the forward-looking part of the report was not so rosy. The Street consensus pointed to earnings near $0.37 per share on revenue in the neighborhood of $368 million in the second quarter. The midpoints of management's official target ranges were just $0.29 per share and $320 million, respectively.
Investors were quick to brush off the solid first-quarter results to focus on weaker results in the ongoing quarter.
What's next: Steering through unpredictable waters
The modest guidance was inspired by "changing customer buying patterns based on macroeconomic conditions in certain geographies," according to a statement attributed to CEO Kevin Rhodes. The shifting sands should lead to slower sales growth than previously expected in 2024.
However, it's not the end of Extreme's world as we know it. Rhodes expects wider profit margins lifting bottom-line earnings roughly 25% higher in the next fiscal year, despite the softer sales and unpredictable market tenor.
So the company is pumping the brakes on its formerly solid revenue growth, but earnings are getting richer. All in all, Extreme's stock looks like a bargain at 9.3 times forward earnings projections, but the road ahead may be bumpy.
