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Procera Networks, Inc. Message Board

  • petercohen33 petercohen33 Mar 8, 2013 2:12 PM Flag

    Needham Reseqarch Report

    Procera Networks Inc. (PKT) – Buy
    PKT: Classic Tier 1 Transition – Weakness Is Buying Opportunity—Cutting Estimates on
    Up-Front Investments But Longer Term This Is Good News
    Procera Is Experiencing Growing Pains—A Particular Type of
    Growing Pain Called the Tier 1 Service Provider Challenge. The holy
    grail for most network equipment companies is winning big Tier 1 Service
    Provider contracts. The biggest challenge to a small company is,
    ironically, winning and succeeding with big Tier 1 contracts. Tier 1
    Service Providers require more support and installation services and have
    many more acceptance criteria than smaller service providers. We see
    Procera as a victim of its own success, but this is a quality problem. More
    importantly, in our opinion this is not the time to sell the stock but instead
    the time to Buy these shares.
    • Yes, We are Cutting Estimates. However, the reason we are cutting
    estimates is heavy up investment in order to support strong orders from
    Tier 1 customers.
    • Shifting Revenues More to 2H from 1H. Most investors get spooked
    by companies that shift revenue timing out. How do you know it’s not
    going to slide out again? However, this is normal with Tier 1 service
    provider wins. Tier 2 Service Providers generally have few acceptance
    criteria. Tier 1s almost always have Revenue acceptance criteria. It is
    much harder to call the timing of Revenue recognition.
    Why are We Remaining at a Buy?:
    1. First Inning: The industry is in its very early stages of adoption.
    2. Strong Orders: PKT had 124% order growth in 4Q
    3. New Customer Mix: PKT had over 40% of orders from new
    customers in 4Q, the best percentage in the industry
    4. Tier 1 Wins and Trials: PKT had 7 Tier 1 wins in 4Q and 19 Tier
    1 trials in 1H—This is a strong indicator of future orders
    5. New Product Ramp: PKT’s PK 20000 product is just starting to
    deliver revenue in 4Q and should ramp into these Tier 1 wins
    6. Margin Rebound in CY14: The investment should lever CY14
    7. Valuation: PKT is at just 9.3x EV/E on CY14 estimates
    Yes, we are cutting estimates, but the reason is a wealth of demand
    from much bigger customers. This is a quality problem.

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    • Not sure where Needham is getting Tier 1 wins in Q4 = "4. Tier 1 Wins and Trials: PKT had 7 Tier 1 wins in 4Q and 19 Tier"

      If I understand well per Q4 CC - 4 T1 Wins include:
      - U.S. fixed line service provide
      - Middle Eastern mobile service provider,
      - Eastern European cable provider
      There were 13 Tier 1 Wins in 2013 and 7 of them were Mobile.

      Sentiment: Strong Buy

    • Always respect Needham view on stock reports this one was no exception, Glad i averaged in on the 500 i bought @16. w/16.00 & another 1500 at $11.81, I'm very disappointing with ALLT bad showing, did sell 1/3 at $25. still in the green on that but not by much, now it's in for the long wait. Thanks for the post have a good weekend. Pump

    • Sales guys always forget that you have to "find" the price of any product based on how many of them you can sell. If it is taking them more than 120 days to close a deal, they've got some demand issues.

      • 1 Reply to hirsute_123
      • Hirsute not sure exactly what you are referring to, i believe you are focused / concerned about 2 million plus order that did not get booked in Q4 and unfortunately was pushed out / caused #'s to miss expectation. Clearly in this particular case customer after order was delivered received installed and in production for MANY months wanted a additional feature. Welcome Procera to your new customer / introduction to the Universe of working with larger / larger Service Provider. I was shocked after speaking with someone in the know that this business was not able to be booked during Q4. Procera has bulked up Service and Support facet of their business both positioning and anticipating growth in Customers & order flow.

11.500.00(0.00%)Jun 4 3:59 PMEDT