Shares of network infrastructure company Extreme Networks (EXTR 2.38%) sank on Wednesday after the company reported financial results for its fiscal second quarter of 2024 and issued guidance that disappointed the market. As of 12:50 p.m. ET, Extreme Networks stock was down 17% and had touched new 52-week lows earlier in the session.
The current headwinds
For Q2, Extreme Networks generated revenue of $296 million, which was down almost 7% year over year. When the company initially gave Q2 guidance in November, it had expected Q2 revenue of at least $312 million. However, management lowered its guidance on Jan. 8 and its Q2 revenue fell inside of the revised guidance.
Extreme Networks' management said that it's still dealing with supply chain challenges related to the COVID-19 pandemic, which is a little discouraging considering how many other companies have moved past this issue.
Consequently, management is guiding for third-quarter revenue of up to $210 million and fourth-quarter revenue of up to $275 million. These numbers represent substantial year-over-year declines of 37% and 24%, respectively. Moreover, in the second half of its fiscal 2024, the company expects operating losses.
Is there reason for optimism?
The silver lining for Extreme Networks' financial results is the ongoing growth of its revenue for software-as-a-service (SaaS). Subscription revenue was up 15% in Q2. And its annualized recurring revenue was up 37% to $158 million -- an all-time high.
Therefore, there still seems to be plenty of demand for Extreme Networks' services but hardware sales are struggling and hitting the top line. That does give reason to believe the company can eventually get back on track. And indeed, management believes it will return to growth in fiscal 2025, which will begin in July.
That said, I can appreciate if investors wish to sit on the sidelines for now with Extreme Networks stock given that the next two quarters aren't expected to be good.
