Shares of videoconferencing specialist Polycom (Nasdaq: PLCM) absolutely tanked yesterday, for no discernible reason. Israel-based rival Radvision (Nasdaq: RVSN) supposedly received and rejected a generous buyout offer from Hewlett-Packard (NYSE: HPQ), sending that stock skyward. However, that kind of chatter usually lifts all boats, rather than sinking some.
Perhaps spooked by Polycom's rapid rise to 10-year highs, including a three-month gain of more than 41%, investors dropped the share price by 6.4% on Thursday in preparation for the fourth-quarter earnings report.
Boy, was that a bad bet. Polycom proceeded to crush every estimate and send the stock back to fresh decade-high prices. It's up by 13% in midday trading.
Non-GAAP earnings per share jumped by 48% year over year to $0.49, on 27% stronger sales. In both cases, these results left even the highest analyst targets far behind. Management pointed to particularly strong growth in Russia, China, India, and Australia, although sales were strong across all geographies and product categories.
The company plans to support the Asian growth momentum with "a few targeted investments" in coming quarters. Polycom is pushing its Unified Communications Everywhere to sales channels and partners across the globe, and the solution is obviously in high demand.
Polycom is also working its video solutions into tablet computers, partnering with every major tablet designer from Apple (Nasdaq: AAPL) to Samsung and Research In Motion (Nasdaq: RIMM). These moves help expand Polycom's addressable market into the personal-communications space.
Against archrival Cisco Systems (Nasdaq: CSCO) and the videoconferencing systems it acquired with Tandberg, Polycom wins contracts with its lower bandwidth needs, which lead to a more affordable total cost of ownership.
Polycom's success puzzle has many pieces, all adding up to a highly specialized small-cap business that's competing successfully against giant Cisco in a red-hot market. This winning Rule Breaker surely belongs on your Foolish watchlist, if nothing else. You can also join me in placing an "outperform" call on Polycom in our CAPS system. Either way, you'll get a ringside seat to the company's future challenges and wins.
