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Gigamon Plunges 32.4% on Dismal Q2 Preliminary Results

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Shares of network traffic management software provider, Gigamon Inc. (GIMO), plunged 32.4% on Wednesday’s trade following its disappointing second-quarter preliminary results.

Gigamon lowered its revenue estimate to $34.5 to $35.0 million from its earlier projection of $38.0 to $42.0 million in the recently released (Jul 8) preliminary result for the second quarter. Management cited ‘longer review and approval cycles’ to be responsible for a lower number of deals being closed during the quarter that in turn impacted revenues. Incidentally, Gigamon’s second-quarter revised revenue projection is in line with the Zacks Consensus Estimate. 

Importantly, this is the second time in consecutive quarters that management revised down its revenue outlook. Gigamon issued a revised first-quarter revenue guidance of $31.0 to $31.5 million versus $34 to $35 million expected earlier.

Moreover, the current revenue projection has prompted a number of analysts to downgrade the stock citing lack of visibility and competitive pressures from new as well as established companies.

Despite the revenue disruption, management reiterated gross margin and operating expense projections. It is worth noting that Gigamon expects gross margin to range within 78.0–79.0% and operating expenses in the range of $28.5 to $29.5 million. Moreover, the company added 84 clients to its roster.

Notably, Gigamon will release its full set of second-quarter numbers on Jul 24, 2014. The Zacks Consensus Estimate for the second quarter for Gigamon is pegged at a loss of 11 cents. On a cautionary note, Gigamon has a negative earnings surprise of 480.04% over the last four quarters.

Nonetheless, Gigamon’s new and innovative product launches remain its growth catalysts. Its GigaSMART platform witnessed higher adoption. Moreover, the company is adding new clients, which is a positive.  

However, competition from the likes of Juniper (JNPR) and Cisco (CSCO) remain the concerns. Moreover, the company’s inability to close the projected deals will dent investors’ confidence.

Currently, Gigamon has a Zacks Rank #3 (Hold). Investors can also consider NVIDIA Corp (NVDA), which sports a Zacks Rank #1 (Strong Buy).

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