Extreme Keeps Rolling

Extreme Networks (Nasdaq: EXTR), an independent networking company that has focused on helping customers integrate diverse networking technology including multivendor deployments, continues to grow and gain momentum with its “One Network, One Cloud” strategy.

In announcing its fourth quarter fiscal year 2023 results, the company reported revenue of $363.9 million, representing 31% year-over-year growth, exceeding most financial projections for the quarter. Based on the numbers, Extreme -- like several networking companies - is taking share from industry giant Cisco (Nasdaq: CSCO).

Extreme's shares rallied as much as 8% after the news was announced on Thursday, before settling back a bit. Extreme's stock is now up 60% year-to-date, trading today around $29.

Strong Cloud SaaS Growth

Extreme executives cited strong double-digit growth in both campus switching and wireless local area networking (LAN), partially offset by a decline in datacenter revenue. Cloud subscription growth was also strong, with the company reporting that annual software-as-a-service (SaaS) revenue grew 25% year-over-year to $129 million, up from $103 million in the year-ago quarter.

Extreme CEO Ed Meyercord continued to beat the integration drum, pointing to Extreme’s strategy of making it easy to manage a variety of networking systems under one software license and management system, regardless of which vendor is installed. This is a not-so-thinly veiled message to Cisco customers, who often express frustration with Cisco’s aggressive sales strategy and complex portfolio of software licenses and operating systems.

Meyercord said on the call:

“Our One Network, One Cloud, One Extreme solution enhanced with our AIOps capabilities, excels relative to the complex and high total cost of ownership solutions of our competitors. With this differentiation, new growth vectors and higher level of our team’s execution, I’m confident in our continued growth outlook.”

“We are forecasting market share gains with channel partners, leveraging the strength of our unique solutions in the enterprise market. We also have an opportunity to expand our subscription business to our entire hardware portfolio in fiscal 2024.”

Extreme executives also cited several big account wins in the quarter. These included:

• One of the world’s "largest Ski Mountain Conglomerates with 50 resorts across 15 states and three countries," which the company said chose Extreme after deep frustration with one its largest competitors.

• Extreme cited a win with a leading grocery chain in Mexico with nearly 900 locations. The company is upgrading its network with analytics and cloud management capabilities to support a better retail experience. Key elements included Extreme’s AIOps with its CoPilot Solution to help augment IT staff.
• Extreme said it expanded its footprint within MLB and the NHL, winning new deals with the Arizona Diamondbacks, Philadelphia Phillies, and Philadelphia Flyers.

Analysts Like the Story

Mike Genovese, an analyst with Rosenblatt who has followed the Extreme story for a number of years and correctly called the rally, liked the story so much he increased his estimate and price target on the stock. His 12-month price target on the stock is now $35.

“Extreme is winning larger deals with more household name customers, and had 182 $1+mn customers in FY23,” wrote Genovese in an analyst note yesterday. “We are raising our revenue and EPS estimates. Our new price target is $35, based on 16x our FY25 EPS forecast, and we continue to expect Extreme to produce upside versus Street expectations in FY24 and FY25.”

Rosenblatt points to signals from management that business will continue to be strong, including an increasing pipeline, firm orders, and a normalizing supply chain.

Futuriom Take: Extreme’s backing up its One Network One Cloud strategy with numbers, showing it can take share from larger competitors by easing customer management and licensing.