Once a model of consistency, Sandvine’s quarterly reports have disappointed of late. In October, the Waterloo-based company’s Q3 revealed a loss of $900,000 on revenue of $21.8-million. The numbers were an improvement over Q2′s $18.6-million topline, but not enough to prevent the its fourth consecutive quarter in the red.
Cormark analyst Richard Tse says this time might be different. He expects the quarter will show that Sandvine management is beginning to turn things around, and is on its way to a recovery in 2013. Tse believes a string of recent good news, including $4.5-million in follow-on orders from a Western European operator, an order from Tier-1 North American service provider, and the signing of a major Asian service provider, means Sandvine has laid the foundation for a reversal. In a research update to clients today, Tse reiterated his BUY rating and $2 target on Sandvine.
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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, however, 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.
Tse says he expects Sandvine will lose $0.01 per share on revenue of $22-million in its Q4. The Cormark analysts says he is unwilling to suggest the company should trade in line with immediate comparables such as Procera Networks and Allot Communications, but at 1.2x EV/sales, it remains attractive relative to its those companies, which trade at 3.9x and 2.2x EV/sales, respectively.