Redback Slides as CFO
Quits, Shares Hit Market
By PETER LOFTUS
Dow Jones Newswires
NEW YORK -- Shares of Redback Networks slipped 4.2% Thursday
after its chief financial officer resigned and the company announced an
early release of the lockup period for shares not sold in its initial public
offering.
On the Nasdaq Stock Market, Redback fell 5
11/16 to 129 3/8, after dropping as low as
116 1/2 earlier in the day.
Meanwhile, the Nasdaq Composite Index
moved into positive territory, rising 5.57 to
2806.84 while Morgan Stanley's high-tech 35
index fell 3.02 to 1234.01. The Dow Jones
Internet Index rose 1.67 to 242.65.
The Sunnyvale, Calif., provider of data
networking services reported third-quarter
results late Wednesday that beat analysts'
estimates. Redback lost four cents a share on
revenue of $20.6 million for the quarter ended
Sept. 30, while a First Call/Thomson Financial
consensus had predicted a loss of five cents a share.
But the positive earnings news was overshadowed by the company's
announcement that Geoff Darby resigned as chief financial officer. Mr.
Darby, who joined the company last year, is being replaced by Craig M.
Gentner, who previously held the same post at Network Equipment
Technologies.
In another shock to investors, the company announced that the
underwriters of its IPO, led by Morgan Stanley, granted an early expiration
of the lockup period for 12 million shares not sold during the IPO. There
have been two previous early expiration of lockup periods, which sent a
combined 12 million shares into the market on a split-adjusted basis. The
lockup initially was to prevent insiders from selling shares until
mid-November.
Mr. Darby's departure sparked fears of instability at the company, while
the early IPO lockup expiration prompted concerns about an over-supply
of shares on the market. Company officials weren't immediately available
for comment.
Kaufman Brothers analyst Barry Sine thinks investors' concerns were
misplaced. Mr. Darby's departure, while a surprise, makes sense when
one considers that he had participated in the IPOs of two other companies
before Redback, and made out well financially in Redback's IPO, Mr.
Sine said. Mr. Darby said during a conference call Wednesday that he
wanted to spend more time with his family, according to Mr. Sine.
The choice of Mr. Gentner, with 13 years experience as a chief financial
officer, shows that Redback made a carefully thought-out successor for
Mr. Darby, Mr. Sine said.
Mr. Sine wasn't concerned about the early lockup expiration because the
underwriters have offered such early releases twice before. He said the
gradual release of shares into the market has been absorbed nicely, and is
preferable to a flood of shares in November, which would cause an
over-supply and could drive the stock price down.
Redback's third-quarter results "significantly" beat Mr. Sine's estimates, he
said. He was particularly impressed by the company's expansion in
Europe.
U.S. Bancorp Piper Jaffray analyst Conrad W. Leifur downgraded his
rating for Redback to "neutral" from "buy" solely on valuation, according to
a summary of rating changes issued by the firm. Mr. Leifur said Redback's
third-quarter results were impressive; he made no mention of the other
news. Mr. Leifur couldn't be reached for comment.
Mr. Leifur raised his estimate of Redback's fourth-quarter results to
earnings of one cent a share on revenue of $23.5 million from a loss of one
cent on revenue of $19 million.
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