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CacheFlow shares plunge
November 22, 2000: 2:03 p.m. ET

Computer networking shares hammered by revenue-growth concerns
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NEW YORK (CNNfn) - Shares of computer networking company CacheFlow Inc. plunged more than 38 percent Wednesday after the company turned in fiscal second-quarter financial results that were below some lofty expectations.

After the close of trading Tuesday, CacheFlow, which makes hardware and software designed to accelerate and optimize the flow of information over the Internet, reported a quarterly loss less than that expected by analysts polled by earnings tracker First Call.

However, at 45 percent, the company's reported revenue growth for the quarter fell short of previous quarterly increases of 60 percent or more, sparking concerns that the rise in value of its stock had outpaced its potential for growth.

graphicIn early afternoon Nasdaq trade Wednesday, shares of CacheFlow (CFLO: Research, Estimates) were down $29.81, or 38.8 percent, at $47. At that level, the company's shares are down more than 74 percent from an all-time high of $182.19 reached last December.

Some analysts said Wednesday's sharp decline was a result of investors ignoring guidance from CacheFlow executives who had signaled slowing growth rates.

Bear Stearns analyst Robert Fagin Wednesday maintained his "attractive" rating on the stock but reduced his 12-month price target to $74 from $85.

"Going into the second quarter, we were not concerned that CacheFlow would miss its numbers, but that investor expectations were too high," Fagin said.

Some of the "whisper numbers " for cash flow unofficial estimates that are passed around the Street outside of the official estimates compiled by First Call and others had projected as much as a 65 percent revenue increase during the second quarter, Fagin said.

  We were not concerned that CacheFlow would miss its numbers, but that investor expectations were too high.  
  Robert Fagin
Bear Stearns
Executives at CacheFlow in Sunnyvale, Calif., reiterated their revenue growth expectations of 30-40 percent for the last two quarters of fiscal 2001 and 20-30 percent growth per quarter in fiscal 2002.

Fagin said those estimates may be "too aggressive," noting that new business in the second quarter accounted for just 18 percent of sales, compared with 30 percent in the first quarter.

Morgan Stanley analyst Christopher Stix also chimed in Wednesday. He kept his "outperform" rating on CacheFlow shares but also slashed his price target, now expecting $75 compared with the previous target of $130.

Stix also cited concerns about a deceleration in the company's revenue growth, noting that a slowing economy, moderating demand from service providers and the likelihood of a seasonal slowdown in the coming months could weigh on its top-line.

"We remain confident in CacheFlow's long-term business and the overall content networking market, but we recognize that in the current market environment, CachFlow's shares are likely to be volatile over the next several months," Stix said.

Some of CacheFlow's competitors fell in sympathy Wednesday. Inktomi (INKT: Research, Estimates) shares were off $7.44 at $28.81. Network Appliance (NTAP: Research, Estimates) fell 69 cents to $60.31, a 1.2 percent decline. Shares of Cisco Systems (CSCO: Research, Estimates) edged down 31 cents to $53.38.

-- Reuters contributed to this report graphic


Software stocks slammed - Nov. 22, 2000