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Why Extreme Networks, Inc Shares Crashed on Thursday

By Brian D. Pacampara, CFA - Jan 28, 2016 at 5:07PM

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The networking technologist doesn't seem to be back on the growth track, after all.

What: Shares of networking equipment technologist Extreme Networks (EXTR 1.63%) closed Thursday's trading session down a whopping 26% after its quarterly results and outlook disappointed Wall Street.

So what: Extreme shares have surged during the past several months on signs of accelerating top-line growth, but today's Q3 results -- EPS of $0.09 on a revenue decline of 5% -- coupled with downbeat guidance, are quickly forcing Mr. Market to sober up. In fact, gross margin during the quarter fell 70 basis points over the year-ago period, raising plenty of concerns among analysts over increasing costs and competition going forward.

Now what: Management now sees Q3 EPS of ($0.01)-$0.03 on revenue of $118 million-$128 million versus the consensus estimate of $0.03 and $123.2 million, respectively. "Now that we've laid the groundwork over the past two quarters, we are concentrating our efforts on new product introductions and executing our solutions-based selling initiatives in our target vertical markets," said President and CEO Ed Meyercord. "With better visibility into our pipeline and strong business momentum, we are projecting year over year growth for the March quarter." Given Extreme's worrisome top-line and still-fickle competitive position, however, I wouldn't bet too heavily on that bullishness just yet.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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