Beyond The #’s: Riverbed’s Q1 2011 Earnings

The most relevant business, product and technology takeaways from Riverbed’s earnings call:

  • Strong product sales growth…+50% y/y during seasonally softer qtr, quarter was more back-end loaded than expected, feel good about how they exited qtr and funnel into Q2, Steelhead 92% of revs, datacenter appliances fastest growth category
  • New software release…RIO v6.5 intro’ed in qtr, includes deep packet inspection and Microsoft Outlook Anywhere, enhanced support for Citrix XenDesktop, also supports Microsoft and VMware VDI
  • TAM expansion…now compete in 3 different TAMs w/Steelhed, Whitewater & Cascade, at different maturity levels and phases of development across eacg, all three products have similar gross margins
  • On competition…cisco still dominant competitor in the field, hold 17% market share advantage, big drop-off after that to blue coat and citrix, see Silver Peak maybe 20 times per qtr and end up winning a majority of the time
  • Service provider differentiation…feel like they have far more application fluency and performance improvement than most competitors, the ability to scale and handle larger deployments is what separates them from competitors
    • One large Service Provider customer…3/4th’s of managed WAN optimization services deployed were Riverbed, offer multiple options to customers and they were choosing Riverbed 75% of time
    • SI’s and Service providers in aggregate make up 1/3rd of business in any given quarter
  • Cloud adoption…everyone interested in it, everyone touching toe to water, need some initial deployments that are successful and reference-able, “the truth is we have been selling private cloud deployment for 6 years already”, public cloud is next step, won’t be huge in 2011, by 2015 it will be gigantic
  • Whitewater…slightly higher ASP than Steelhead, similar margin profile, positioned to be lead product as customers move into cloud with backup/archive storage, early days, handful of customers, couple dozen sales in Q1, decent pipeline for the rest of the year, won’t be giant revenue producer in 2011, good halo effect on the rest of the company, attractive to SMB (especially early versions), future versions will be larger and more robust
    • Go-to-market strategy…most important factor tied to adoption is the “macro wind of cloud storage”, as demand matures Riverbed is positioned through cloud storage service providers to enjoy the benefits
  • Cascade…just getting started, very small penetration into existing customer base, outpaced Steelhead growth in qtr (ex-Cace the Steelhead business still grew >40% y/y), v9.0 release in qtr, fine grained traffic classification, including advanced Layer 7 awareness, “think this network performance management solution is the best technology the market”, Cace acquisition was finishing touch to Cascade product line, something they needed to make this a full product
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