Some positive comments from The Fool:
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CacheFlow Ready to Cash In?
Caching company CacheFlow reports better than expected fiscal Q1 results
and lays claim to the top spot in its market by growing faster than its
competitors and stealing share. However, the company is still largely in
the infrastructure networking shadows as far as investors are concerned.
The firm's CEO thinks that may be about to change as the target market
expands at a faster rate than current estimates over the coming years.
By Brian Graney (TMF Panic)
August 17, 2000
Internet content caching appliances maker CacheFlow (Nasdaq: CFLO) got a
boost this morning after turning in better than expected results for its
fiscal first quarter last night. While the company's sequential topline
growth rate accelerated during the quarter, the bottom line still showed
a net loss of $0.14 per share, excluding stock compensation charges and
goodwill amortization. Don't let the red ink fool you, however, as the
result wasn't quite as bad as the loss of $0.17 per share expected by
analysts surveyed by First Call.
While some investors have backed away from the idea of sinking money
into pre-profitability companies amid the stock market's gyrations over
the past few months, CacheFlow might not stay unprofitable much longer.
The natural growth rate for caching and content distribution solutions
combined with market share gains resulted in a 75% sequential jump in Q1
revenues, up from the 60% sequential growth reported in the previous
quarter. At the same time, absolute operating losses (excluding goodwill
amortization) declined 12% quarter-to-quarter.
Overall, management is guiding investors to expect 30% to 40% sequential
growth from the market in the coming quarters. Meanwhile, the four
year-old company believes that it has already reached critical mass in
terms of the corporate infrastructure needed to support that growth, as
CEO Brian NeSmith related in an interview with the Fool this morning.
"We had set expectations to everyone that we were going to invest in the
infrastructure very aggressively upfront and we expected to see a return
within a quarter or two. Now, we're seeing the result," NeSmith said.
The numbers appear to bear this out, as operating expenses (again,
excluding that pesky non-cash goodwill amortization) increased a mere
14% sequentially.
With this information in hand, an investor can start to make some
projections to see just how far CacheFlow is from base camp on the well
built up "path to profitability." Assuming it continues to grow its
topline from here at a consistent 40% rate, holds the line on gross
margins at this quarter's 63%, and keeps quarterly operating expense
growth to a 15% rate, CacheFlow should theoretically see operating
income in four or five quarters. The company is a bit more aggressive in
its own forecast and is expecting to hit the breakeven even point in the
later half of the current fiscal year.
Outside of the emphasis on profitability, the company is also setting
its sights on capturing as much market share as possible. "We're growing
faster than anyone in the market," NeSmith commented. "We grew at 75%
sequentially and our next competitor grew at 35% to 40%. And a couple of
our competitors have actually shrunk in this market."
Based on those growth differences, CacheFlow is now able to claim that
it is the number one vendor in the Internet caching appliance market, up
from the third or fourth position a year ago. Then again, the revenue
run rate for the entire market this year is only about $150 million to
$200 million, a drop in the bucket compared to the size of other
fast-growth areas of infrastructure networking.
A big question for investors to ask right now is just how big the
caching and content distribution appliance market can get. Industry
analysts are forecasting this sector to more or less double every year
for the next few years, leading to a roughly $4 billion market by 2004.
CacheFlow, on the other hand, believes those forecasts are too low. At
this point in time, the ultimate accuracy of the company's prediction
and its long-term success in extending its share leadership in caching
appliances appear to hold the key to whether CacheFlow's market
capitalization can expand from its current level of $3.2 billion. |
