Network solutions provider Extreme Networks (NASDAQ:EXTR) stock is awakening as it ascends towards multi-year highs driven by secular tailwinds in cloud and 5G. The Company is also migrating to a subscription model which makes sense since it’s more of a software solutions provider, not hardware. It’s ExtremeCloud IQ is a cloud-based network management system which enables clients total visibility of their distribution network via cloud. Capabilities include analytics, security, IoT support, and streamlined control and management with the convenience of cloud access. The Company managed over 1.5 million network devices on its ExtremeCloud which is the key driver of its subscription revenue with recurring revenues growing to more than 30% of fiscal 2020 revenues. These tailwinds are materializing thanks to the acceleration of COVID vaccinations which is arguably the most significant factor with re-opening efforts. Prudent investors looking for a bullish bet on distributed networks in the age of the cloud can watch shares of Extreme Networks for opportunistic pullback levels.
Q3 Fiscal 2021 Earnings Release
On Apr. 28, 2021, Extreme Networks reported its fiscal Q2 2021 results for the quarter ending March 2021. The Company reported earnings-per-share (EPS) of $0.16 versus consensus analyst estimates for $0.14, a $0.03 beat. Revenues grew 21% year-over-year (YoY) to $253.4 million, beating analyst estimates for $244.62 million. Non-GAAP operating margin grew to 11.3% compared to (-5.1%) in previous year-ago period. Free cash flow was $20.4 million while the Company generated $24.7 million in net cash from operating activities. Extreme Networks CEO, Ed Meyercord, stated:
“Extreme is coming out of COVID in a stronger position than ever before and enterprise customers are turning to Extreme’s industry-leading cloud solutions to meet the new demands of the distributed enterprise. This is highlighted by ExtremeCloud IQ new subscription growth of 122% year-over-year, which in turn fueled product revenue growth of 29% year-over-year.”
He continued:
“Looking ahead at Q4, we continue to expect double-digit year-over-year revenue growth as demand for our differentiated cloud-driven networking solutions continues to build. The pace of our cloud innovation for enterprise solutions is accelerating and also underpins the success of our new cloud-native networking solutions in the 5G space.”
Q4 Fiscal 2021 Guidance Raise
Extreme Networks raised its fiscal Q4 2021 EPS guidance to a range between $0.16 to $0.20 versus $0.16 consensus analyst estimates. The Company raised revenues guidance to come in between $260 million to $270 million versus $252.90 million analyst estimates. The Company had some great wins including being the Official Wi-Fi Solutions provider of Major League Baseball (MLB) and will provide fan-facing Wi-Fi in 16 stadiums along with connectivity in bullpens and dugouts in 30 ballparks. Installation is expected to continue through 2026.
Conference Call Takeaways
CEO Meyercord set the tone:
“The strength of our Q3 results is highlighted by the fourth consecutive quarter of sequential growth, define the traditional seasonality of our business, and we also delivered 21% year-over-year growth, driven by increase customer demand and continued improvement of our team’s execution.”
He pointed out that 26 customers spent over $1 million with the Company in fiscal Q3. He also noted the trend of the elastic office taking over globally:
“Enterprise customers around the world are planning for a more flexible work environment and what that means for support their customers and employees. It’s universally accepted that the new edge of enterprise networks will become permanently more distributed than what we call the Infinite Enterprise.”
With that said, the Company saw E-rate filings up 35% YoY crossing the $100 million mark for the first time. Cloud is the most logical platform to address this urge for flexibility with a distributed network, which plays right into Extreme Networks core service.
EXTR Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for EXTR stock. The weekly rifle chart formed a pup breakout as the 5-period moving average (MA) goes flat at $11.18. The weekly stochastic is stalled at the 80-band setting up a potential mini pup. The weekly upper Bollinger Bands (BBs) target the $12.50 Fibonacci (fib) level. The weekly market structure high (MSH) sell triggers on a breakdown under $10.73. The daily rifle chart pup breakout formed on the market structure low (MSL) buy trigger breakout through $10.22. The daily rifle chart has been in compression as the BBs compress. The compression precedes a price range break when they start to expand outwards. The direction is the only question. The daily rifle chart has flat moving averages overlapping around $11.40. Prudent investors can monitor for opportunistic pullback levels at the $11.01 fib, $10.50 fib, $9.48 fib, $9.12 fib, $8.34 fib, $7.76 fib, and the $6.55 fib. Upside trajectories range from the $14.43 fib up to the $20.39 fib level.