Infoblox Inc: Recent Sell-Off Creates Buying Opportunity

Shares of Infoblox, Inc. (NYSE:BLOX) fell as much as 29 percent after its lower-than-expected second quarter outlook, which triggered a sell-off and sent the stock to a three-month low.

For the second quarter, Infoblox guided adjusted earnings of 9 to 11 cents a share, with revenues between $65 million to $66 million. Analysts were expecting earnings of 12 cents a share on revenues of $67.04 million for the quarter.

The key question now is whether there has been a change in momentum with its business into fiscal 2014. The answer seems to be no as key demand metrics like day sales outstanding, customer adds, and deferred revenue were intact, and the recent sell-off is overdone.

[Related -Infoblox Inc (BLOX): Can Infoblox Results Top Estimates?]

After a year of strong revenue upside that led to 35 percent product growth, Infoblox reported an in-line October quarter on revenue along with solid EPS upside driven by strong product margins.

However, after a solid fourth quarter finish, it appears that some pipeline rebuild in the first quarter, and weakness in Asia-Pacific were the main culprits preventing better revenue upside.

Sterne Agee analyst Alex Kurtz is of the view that there wasn't a negative change in the company's trajectory toward 20 percent-plus product growth for fiscal 2014.

Santa Clara, California-based Infoblox continues to grow customers at 200 per quarter, and now the count comes to 6,900, which provides a broader base to drive core IPAM (Internet Protocol Address Management), as well as DNS Firewall revenue.

[Related -Infoblox, Inc. (BLOX) Q4 Earnings Preview: What To Watch?]

More specifically, only 150 existing customers have added DNS Firewall and there is vast scope for improving this number. The company's lower-ASP Trinzic 100, suitable for branch deployments, and the security-focused DNS firewall should help it to upsell into the installed base and to address rising DNS security.

The company also unveiled the new DNS Fir! ewall – FireEye Adapter, which combines Infoblox DNS Firewall and the malware protection system from FireEye Inc. (NASDAQ:FEYE) to protect against Advanced Persistent Threats (APTs).

Meanwhile, deferred revenue still grew faster than revenue at 32 percent versus 28 percent. Large deal transactions were flat quarter over quarter, but in dollar amount aggregate slightly down; suggesting that a few bigger deals might have flushed out during the fourth quarter compared to the first quarter, and could have accounted for some of the lack of upside surprise.

In addition, product gross margins performed well at 79.2 percent and the company continues to drive strong operating margin results, at 12.2 percent versus guidance of 8-9 percent.

The company put out a positive tone, along with maintaining fiscal 2014 revenue guidance of $270 million to $276 million. The company sees non-GAAP earnings of 44 to 54 cents a share and non-GAAP operating margin of 10.5 to 12.5 percent. Analysts, polled by Thomson Reuters, currently expect earnings of 52 cents a share on revenue of $274.52 million.

Moreover, Infoblox is well positioned to leverage its technology leadership by expanding solutions in the areas where CIOs are investing today while accelerating the market's awareness and adoption of its automated network control solutions.

As a result, though the company may have guided second quarter lower than the Street's expectations, the total available market, security products and installed base across 6,900 customers should provide enough opportunities to boost product revenue in the second half of 2014.

Thus, the sell-off in BLOX shares creates a nice buying opportunity.

CEO Elon Musk gets charged up as feds probe Tes…

As federal investigators announced a formal safety probe Tuesday, fledgling electric car maker Tesla Motors is getting a quick lesson in what it's like to be treated like a big, mainstream automaker.

The crisis over two reported battery fires on its acclaimed Model S sedan comes at a difficult time for the company, which is trying to keep the momentum going after impressive sales, profitable quarters and a seesawing stock price this year. Instead of letting the probe simply unfold, CEO Elon Musk quickly fired off blog posts and tweets to defend the car and aggressively address the fire issue.

Brash as always, he wrote that Tesla has invited the National Highway Traffic Safety Administration to fully examine its cars. NHTSA shot back in a statement that it doesn't work by invitation. "NHTSA's decision to open any formal investigation is an independent process," the agency said, adding that it followed standard procedure.

The agency says it is looking at two incidents, one in Washington state and the other in Tennessee, in which "undercarriage strikes" of debris in the roadway resulted in fires. In each case, the occupants escaped unharmed, which Musk says is proof of the car's safety. Another Tesla Model S caught fire after a serious crash in Mexico. That driver, too, escaped unharmed.

"Since the Model S went into production mid last year, there have been over 400 deaths and 1,200 serious injuries in the United States alone due to gasoline car fires, compared to zero deaths and zero injuries due to Tesla fires anywhere in the world," Musk wrote on his blog.

But auto industry observers and safety experts question Musk's combative response. Karl Brauer, a senior analyst at auto pricing service Kelley Blue Book, says the three fires in Tesla are three more than have occurred with rival electric cars.

"Is there a design flaw in Tesla's battery pack that makes it more prone to fires compared to other cars?" Brauer asks. "That's what NHTSA is determining."

Some question! Musk's aggressiveness on the fire issue.

"They are acting as if this problem is going to put them out of business," says Clarence Ditlow, executive director for the Center for Auto Safety. He says Tesla needs to realize it has a problem and face it head-on. "The way to handle it isn't to stonewall, it's to recall."

While defending the vehicle, Musk announced that Tesla has already wirelessly sent orders to the computers of all Model S electric cars on the road to adjust the suspension so they ride higher on the highway and are less likely to take a hit from debris. He also says Tesla is extending its warranty to include fire damage.

Though unconventional, the tough stand is vintage Musk, always quick to defend his upstart operation based near Silicon Valley.The company walks a fine line between the worlds of technology and automaking.

Musk has a lot at stake. He has had Tesla on track to sell about 20,000 cars this year at prices starting at $70,000.

And though it's known to motorists for its breakthrough, long-range electric cars, the company has taken investors on a roller-coaster ride. After Tesla stock started the year at about $35, shares rocketed to a high of $194.50 before starting to settle, then cascaded due to the fires. On Tuesday, shares actually rallied in the face of the probe, rising $4.51, or 3.7%, to close at $126.09

Breaking into the hidebound auto industry is no easy task, so some find it almost refreshing to see an automaker that follows a different path.

"It's not like they act in traditional ways," says Ron Cogan, publisher of the Green Car Journal, which tracks environmentally sound vehicles. "They don't want to. They want to be known as being different."