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July 9, 2014
13:44 EDTGIMOGigamon plunges after analysts react to lowered Q2 outlook
Shares of traffic visibility and control technology provider Gigamon (GIMO) are crashing after the company lowered its second quarter revenue outlook based on challenges with closing pipeline deals. WHAT'S NEW: Gigamon cut its Q2 revenue view to $34.5M-$35M from $38M-$42M, stating that it experienced challenges with closing deals in its pipeline during the later stages of the quarter as it continued to see longer review and approval cycles. Prior to the revenue warning, analysts' consensus forecast for the company's revenue was a bit over $40M. The company said it was "disappointed" in the preliminary results, but that it remains confident in its market opportunity and technology "We will take steps to improve our execution in order to grow revenue and improve the predictability of our business. On a positive note, we added 84 new customers during the second quarter," said CEO Paul Hooper. Gigamon added that its Q2 gross margins and operating expenses are expected to be consistent with its previously stated guidance. ANALYST REACTION: After the preliminary revenue announcement, Gigamon was downgraded at Goldman, William Blair, Bank of America Merrill Lynch, Needham, and DA Davidson. William Blair analyst Jason Ader said his downgrade was due to a lack of confidence in Gigamon management's capability of forecasting the business, combined with his rising worries that growth obstacles in the visibility fabric market and competitive pressure could have prompted the recent misses. William Blair says that the material reductions to its Gigamon numbers and uncertainty on future growth and profitability make valuation alone not a good reason to stick with the stock. Goldman Sachs analyst Kent Schofield said he was wrong to recommend that investors purchase Gigamon shares in a January 31 upgrade note. The analyst expects shares of the technology company to remain in the "penalty box" until product revenue growth is reignited, which he does not expect to happen in the near-term. Goldman lowered its 12-month price target on Gigamon to $14 from $29. PRICE ACTION: During afternoon trading, shares of Gigamon fell $5.80, or 32%, to $12.38.
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