M Partners analyst Ron Shuttleworth says Sandvine is losing market share to “best of breed” competitors and other vertically integrated network equipment manufacturers. He forecasts little growth for the struggling Waterloo wireless player. In a research update to clients Monday, Shuttleworth maintained his SELL rating and $.80 cent twelve month target on the stock.
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Sandvine was founded in 2001 by a group that had just sold PixStream to Cisco for $554-million. After Pixstream became the 117th acquisition Cisco did in 2000, it curiously shut the division down just four months later.
Sandvine grew because web traffic exploded. As networks became increasingly burdened in the latter half of the last decade, the company’s technology gave service providers a window into the world of their chaotic traffic. The company’s deep packet inspection technology equipped network operators with the critical information they need to make decisions and form policies on service plans, capital investments and premium services. Sandvine now has more than 200 clients in 85 countries, including Cricket, Telefonica and Comcast. These wins helped its topline grow from $51-million in 2008 to $92.7-million in 2010. 2011, however, was a step backward, as revenue came in at just $89.3-million.
Shuttleworth points out that, despite being in a hot sector, there is very little visibility on the future of the company for shareholders. He believes this is because Sandvine has very little recurring revenue, and has not demonstrated a sustainable competitive advantage to gain earnings leverage. He says reducing the fragility of its revenue streams, and demonstrating that it is getting bang for the buck from its considerable R&D spending would give him cause to rethink his position on the company.
At press time, shares of Sandvine were down .8% to $1.28