Why Ciena Soared And Then Slumped After Q2 2024 Earnings

seekingalpha06-10

Ciena's stock responded positively after posting Q2 2024 results, with shares spiking to $55.77, but then closed lower last week.Q2 revenue declined by 19.4% YoY to $910.8 million, causing concern ...

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Trevor MeunierAfter Ciena  posted second quarter 2024 results, the stock responded positively. CIEN shares spiked to $55.77 on June 6, 2024, up from around $48 the previous day. Sellers pounced on the stock throughout the day. By the end of the last week, Ciena shares closed at $45.75. What happened that changed investor opinion of the global leader in optical and routing systems?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"CIEN":"Ciena科技"},"translate_title":"为什么Ciena在2024年第二季度盈利后飙升然后暴跌","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CIEN":1},"content_text":"Ciena's stock responded positively after posting Q2 2024 results, with shares spiking to $55.77, but then closed lower last week.Q2 revenue declined by 19.4% YoY to $910.8 million, causing concern among investors.Ciena is optimistic about future growth opportunities, particularly in the AI and cloud space, but risks remain due to telecom customer spending levels.CIEN Stock rating discussed.   Trevor MeunierAfter Ciena (NYSE:CIEN) posted second quarter 2024 results, the stock responded positively. CIEN shares spiked to $55.77 on June 6, 2024, up from around $48 the previous day. Sellers pounced on the stock throughout the day. By the end of the last week, Ciena shares closed at $45.75. What happened that changed investor opinion of the global leader in optical and routing systems? Q2/2024 Revenue Declined In the quarterly report, Ciena posted non-GAAP earnings per share of $0.27. Revenue fell by 19.4% Y/Y to $910.8 million. The firm did not apply any non-GAAP adjustments that would concern shareholders. For example, in its gross profit reconciliation, share-based compensation for products and services was $1.76 million and $3.3 million, respectively. The data in the tables below are in thousands.   Seeking AlphaIn the operating expense reconciliation, Ciena’s significant asset impairments and restructuring costs were its biggest adjustment at $15.66 million.   Seeking AlphaInvestors are potentially worried about the sharp drop in net income, falling from $133.89 million to $32.7 million. A notable change is its provision for inventory excess and obsolescence increased to $23.15 million, up from $12.69 million last year. Additionally, the company’s purchase of investments increased from $106.2 million last year to $171.1 million. The company said that despite the benefits of positive secular demand, it did not expect it would take longer than expected for service providers “to absorb and deploy the large amount of inventory they have accumulated over the last year or so.” Management worried investors when it expressed caution related to international macroeconomic concerns. Still, the company is optimistic. Service providers are starting to draw down their inventory levels. Ciena engaged in higher service provider and request for proposal (RFP) activities in the last few quarters. This would expand the company’s pipeline without immediately showing up as revenue on the balance sheet. Opportunities Ciena saw the current operating environment did not change by much in the last 90 days. Demand for bandwidth is growing at a healthy rate of 30% compounded annually. In the month preceding the Q2 report, shares traded close to $50. Days before the results, shares bounced back from a modest sell-off to around $47.00. The stock is at lows not seen since April. Seeking AlphaThe valuation grade for CIEN stock worsened to a D+, down from B- three months ago.   Seeking AlphaThe quant scoring is likely penalizing Ciena’s valuation by weighing too heavily on the price-to-earnings for both GAAP and non-GAAP: Seeking AlphaThe stock scores a B- or higher in nearly every other valuation sub-metric. A positive revision on CIEN stock is an opportunity to accumulate the stock at current levels. Growth from AI Ciena’s business grew from the strength in the cloud space. Revenue fell in Q2 because of the normal ebbs and flows of the optical networking market. In the third quarter, Ciena’s VP of Investment Relations said that order flow would increase. It increases again in Q4, setting up a rebound in revenue for the second half of the year. Customers are investing in the data center and growing their cloud business. They expect traffic from AI-related initiatives to increase from later this year into early 2025. Below, Ciena expects an increase in bandwidth consumption from AI: CIEN Q2 2024 slideWaveLogic 6 is a positive catalyst for revenue growth. The product provides ubiquitous 400G/800G connectivity. It supports network scale and is power efficient. Most importantly, it works with existing networking hardware. Risks Telecom customers moderated their spending levels since 2019. As a result, Ciena’s run rate is stuck in the $2.1 billion to $2.2 billion range. SVP and CFO Jim Moylan said on the conference call that the Covid lockdown disrupted demand. That was followed by unfavorable supply chain dynamics hurting the networking hardware business. Today, service providers should start spending again on optical. They need to expand the capacity and performance of their wired networks. For example, Global Content Network operators have a high demand for networks. Stock Rating and Your Takeaway Ciena has a quant rating of 2.67/5.00 or a hold. The stock’s performance is similar to that of its peers. Ubiquiti (UI) is up in the YTD period like Ciena. Conversely, Lumentum (LITE) and F5 (FFIV) lost money for investors in 2024. Seeking Alpha Ciena is a stock to hold. Technology investors are more interested in AI semiconductor stocks like Nvidia (NVDA) or software giants like Microsoft (MSFT). Shareholders should expect optical networking stocks to underperform the technology sector as a result. CIEN will likely trade in a narrow range until the next quarter.  Wait for the company to post stronger revenue growth in the third quarter. If that happens, the rally will hold and the stock should establish an uptrend.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2442684740"}