As the management of corporate networks grows ever
more complex, niche business models have sprung up to
help IT managers focus on various aspects of the
Infoblox, which made its public debut two years ago,
was seen as a rising star in a specific niche:
hardware-based network controls that help secure
firewalls, balance network loads and reconfigure
Shares surged in the latter stages of 2013, as the
company had just delivered a stellar 33% sales growth
rate in the fiscal year ended last July. Investors were
expecting continued strong growth as management noted a
swelling rate of new customer discussions.
Yet toward the end of the year, management noted a
slowdown in quote activity for new customers, and did so
again early in 2014. Investors fled on both occasions,
and shares are now near a post-IPO low.
This recent high-flier no longer seems like much of a
growth story: Sales are now expected to grow at a mere
10% to 15% pace in fiscal (July) 2014 and 2015.
Why did the strong growth suddenly hit a wall?
First, management said that government sales, which
had already been weak, have grown even weaker.
Second, management's decision to put many resources
behind a new network security offering now seems
premature. "While we remain convinced that security will
drive future growth, we have not yet seen a revenue
return commensurate with the investments that we have
made to date," said CEO Robert Thomas on a call with
Yet management has issued a strong mea Culpa, noting
that it can do a much better job on focusing on core
areas of expertise. In a meeting with analysts in late
February, management noted that Infoblox still faces a
fast-growing target market.
"The company believes the significant growth in
denial-of-service (DNS) attacks (up 216% in 2013) will
increase awareness of the threat and drive demand for its
DNS security solutions," note analysts at Goldman Sachs,
who rate shares a "buy" with a $27 price target,
representing 35% upside.
At that analyst meeting, several of the company's
sales channel partners also discussed the company's
market. "One channel partner with 5,600 total customers
highlighted that only a handful of its 300 Infoblox
customers have purchased security products and it
estimates that 75% of its Infoblox customers will
eventually purchase Infoblox's security products," note
To be sure, this is now a wait-and-see stock. A key
catalyst: Guidance for 10% to 15% sales growth for 2014
and 2015 looks increasingly conservative. Analysts at
D.A. Davidson, for example, think "BLOX is well
positioned for significant sustainable growth in the
automated network control market, and it should be able
to sustain at least 20% revenue growth for the
foreseeable future." If sales start to grow closer to a
20% pace, then this stock will be rewarded again by