Juniper's Growing 'Credibility Gap'


By: R. Scott Raynovich

Juniper Networks (JNPR) shares are getting hammered today on disappointing earnings and guidance as well as continued Wall Street analyst criticism that the company is losing credibility with investors.

Juniper's stock fell 1.77 (-6.79%) to $24.39 after it reported earnings on Tuesday night. The company reported third-quarter net income of $174.4 million, or 46 cents a share, compared to $172.4 million, or 45 cents a share, in the year-ago period. Revenue declined to $1.26 billion from $1.29 billion in the year-ago period.

JNPR shares down 6% on miss

These numbers are significantly off street expectations. The consensus expectations were 56 cents per share in earnings and $1.28 billion in revenue, according to FactSet. Worse yet, the company is now projecting adjusted earnings of 49 cents to 55 cents a share on revenue of $1.23 billion for the fourth quarter. The consensus fourth-quarter expectations were for earnings of 62 cents a share and $1.35 billion in revenue.

As covered here in Futuriom, Juniper continues to battle a number of trends including the commoditization of core networking hardware including merchant silicon chips, weakness in its core market of the telecom sector, and the capability of its competitors to capitalize on faster growing cloud infrastructure markets.

Jefferies analyst George Notter has been writing about Juniper's "credibility gap" and the delta between the share performance versus Arista Networks (ANET), which continues to fire on all cylinders.

"Last quarter, we wrote at length about the credibility gap between Arista and Juniper – as evidenced by the multiple investors have been willing to pay for each stock," wrote Notter in a research note this morning. "Juniper's Q3 print (and Q4 guide) provide further justification for that gap. Moreover, it illustrates the lumpiness and customer concentration in Juniper’s business."

Virtualization challenge

The weak guidance certainly does not help the case and is no doubt contributing to the thrashing of Juniper's stock today.

Other Wall Street analysts piled on, pointing to Juniper's industry challenges as a provider of proprietary routing technology.

"We believe Juniper's primary challenges are: 1) the virtualization of Service Provider Routers; 2) Cloud competition from Arista; and 3) relatively high reliance on expensive proprietary silicon," writes analyst Michael Genovese with MKM partners. "The company expects 2018 growth to be led by Switching in the Cloud vertical. However, we think Arista is a very tough competitor here. The company says Routing will likely be flat, although we think it could be down in 2018."

Juniper executives said the company will continue to tightly manage costs, including a "realignment of the workforce" in Q4 (read: layoffs). The company does continue to have a strong balance sheet, as its cash stockpile was stable. Total cash, cash equivalents, and investments as of September 30, 2017 were $4,199 million, compared to $4,215 million as of June 30, 2017.

Maybe it's time to do something with the cash? In summary: Juniper's rough patch continues, and it looks as if a more pointed strategy for growth will be needed.