After market close, Infinera (NASDAQ:INFN) delivered some nice third-quarter results, generating $173.6 million in revenue and $0.11 per share in earnings, cruising past analyst consensus of $170.86 million and $0.07 per share, respectively.
In fact, not only did Infinera beat consensus, but it also reported revenues and earnings per share ahead of even the most optimistic analyst estimates of $173.56 million and $0.09, respectively.
Further, Infinera management guided to $175 million to $185 million in revenue and $0.11 per share in earnings (give or take a "couple of pennies") for the fourth quarter. This easily exceeded analyst consensus of $160.44 million and $0.05, respectively.
So, what's driving this fantastic performance? Let's dig deeper into what management had to say.
Leadership technology and diverse customer base serve Infinera well
Management stated that thanks to continued increases in bandwidth demand, as well as a growing importance of the optical transport layer in new networking architecture, there is still a "significant opportunity" for its 100-gig long-haul offerings.
In fact, management cited a "diverse customer base" spanning a wide range of markets from Internet content providers to government clients. Management believes that its diverse range customers, which "value scalability, ease of use, and the ability to rapidly deploy large amounts of bandwidth," shield it from some of the weak demand that its peers, which focus on "legacy technology" and depend too much on "select Tier 1s," are experiencing.
The opportunity is just getting started
As The Motley Fool's David Meier wrote about in his July update on Infinera, the company had been focusing more on selling "razors" rather than "high-margin razor blades" in a bid to establish a broad customer base for the long-term.
Well, CEO Thomas Fallon pointed out on the call that "the majority of DTN networks deployed today are lightly populated" and that they "are just beginning to see fill." The idea here is that these networks should eventually get "filled" with high margin "line cards", which means that Infinera should see robust revenue and margin expansion as this dynamic actually plays out.
Additionally, Fallon talked up its Cloud Xpress platform, which he noted was "was designed for the Metro cloud market." According to Fallon, revenue from this opportunity should begin to flow in by the end of the year and should accelerate throughout 2015.
What about 2015?
On the call, Sanjiv Wadhwani from Stifel, Nicolaus & Company asked Fallon about what the growth rate of the optical market should look like during 2015. While Fallon was careful not to provide guidance on Infinera's revenue for the year, he did point out that the market itself is projected to grow 8%-10%.
According to Yahoo! Finance, analyst consensus for Infinera's growth during 2015 sit at 12% over the current year's numbers. Now, following these results, the 2014 numbers will obviously need to be revised upward, which would mean that if current 2015 estimates hold, they would represent sub-12% growth.
However, I think in light of the strong performance Infinera has demonstrated during 2014, in addition to its robust exposure to higher end, higher growth portions of the optical market, Infinera could be set to yet-again outgrow the market during 2015.
Analysts will probaby raise their 2015 revenue and earnings estimates following the strong 2014 that Infinera is set to have; by how much remains to be seen.
Foolish bottom line
It seems that the bull thesis is really showing signs of playing out at Infinera. A strong quarter, great guidance, and plenty of opportunities (for example, the Metro cloud) still ahead of the company all lead me to believe that the best for Infinera is yet to come.