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TheStreet Open House

Why Procera Networks Inc. (PKT) Is Down Today

NEW YORK (TheStreet) -- Procera Networks  (PKT) dropped 20% to $12 a share in morning trading on Tuesday after the company announced that its preliminary revenue and bookings results for the fiscal year and fourth quarter that ended on Dec. 31, 2013 came in below the estimates issued by the company on Nov. 4, 2013.

The revenue for the fiscal year is expected to fall in the range of $74.1 to $74.6 million, or a year-over-year revenue growth of 24 to 25%, vs. the company's initial expectation of at least 30% annual revenue growth. The revenue for the fourth quarter is expected to fall in the range of $20.9 million to $21.4 million, or year-over-year quarterly revenue growth of 26 to 29%.

Bookings for the fourth quarter and fiscal year are expected to be approximately $22.5 million and $79 million, respectively. The Fremont, Calif.-based company also expects to meet its previously stated gross margin target range for the fourth quarter.

"Our fourth quarter performance is below the company's previous financial outlook primarily because of reduced orders from the U.S. Cable market that we believe reflects uncertainty and potential consolidation in that market. While we are disappointed by our total revenue performance, our growth drivers are intact and our competitive position remains strong," said Procera Networks President and CEO James Brear. "We plan to provide more perspective on our results during our upcoming earnings release and conference call."

TheStreet Ratings team rates Procera as a "hold" with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate PROCERA NETWORKS INC (PKT) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 22.1%. Since the same quarter one year prior, revenues rose by 32.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • PKT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 6.17, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for PROCERA NETWORKS INC is rather high; currently it is at 52.61%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, PKT's net profit margin of -13.98% significantly underperformed when compared to the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Communications Equipment industry. The net income has significantly decreased by 208.0% when compared to the same quarter one year ago, falling from $2.76 million to -$2.98 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Communications Equipment industry and the overall market, PROCERA NETWORKS INC's return on equity significantly trails that of both the industry average and the S&P 500.

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