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To: Bill Harmond who wrote (39820)	2/4/2008 9:56:05 PM
From: Bill Harmond	Read Replies (1) \| Respond to of 57684

Riverbed Technology, Inc. RVBD - $23.31 ThinkEquity Buy Price Target: $40.00 RVBD: Expect Modest Beat And In-line Guidance; Lowering PT To $40 THINK ACTION: We expect Riverbed to ride the WAN optimization secular growth trend, maintain dominance as the product market leader and deliver a top-line beat in 4Q07. We expect increasing traction with remote data backup release, mobile client, and international business. We also expect Riverbed to issue the March quarter in line with current expectations, while reassuring investors on plans to target operating margin expansion. We believe the stock is attractive at current valuations given the growth profile. We are lowering our price target to $40 (35x our FY09 EPS estimate) factoring in the general contraction of valuation multiples in the market. KEY POINTS: • We expect Riverbed to beat 4Q07 Street consensus estimates on revenues and meet on EPS. We expect the RIOS 4.1 product cycle (WAN optimization solution optimized for data backup), mobile client, and international to drive revenue upside in Q4. Hence, we expect Riverbed to deliver revenues slightly ahead of our estimate for the quarter ($71 million). With the company committed to make aggressive investments in marketing and in building distribution reach in order to drive growth, we expect Riverbed to deliver EPS in line with our estimate of $0.19. • Our checks confirm that the WAN optimization secular trend remains strong and Riverbed maintains its product-market lead. Our checks confirm that Riverbed continues to enjoy a feature performance and scale lead over its competition and continues to win a majority of contests. We are also told that the value proposition of WAN optimization continues to resonate in the market and appears to have been extended to the data center replication market. Riverbed has traditionally made less than 10% of its quarterly revenue in the financial services vertical. This, we believe, should make it relatively immune to budget cutbacks in the vertical. • We expect Riverbed to issue in-line guidance for 1Q08. Although we believe that WAN optimization has a high ROI for enterprises and, hence, its long-term secular trend is strong, there is always the potential of enterprises delaying spending in light of economic uncertainty. However, we believe consensus expectations appear reasonable in light of fundamental's trends. Consensus expectations for 1Q08 call for revenue of $76.5 million, an increase of $5 million—8% sequentially versus $9 million, 26% sequential in 1Q07. • We are lowering estimates slightly to reflect the potential for weak IT spending, and reiterate our Buy rating, keeping in mind the company's strong fundamentals and growth prospects. We are lowering our price target to account for the general multiple contraction in the market. Our price target of $40 is based on a 35 multiple to our FY09 EPS estimate of $1.15.