Ciena’s stock surges on Q1 earnings beat

Ciena Corporation (NYSE: CIEN) reported solid results for the first quarter as the company’s diversification strategy continues to broaden its customer base, which brings in a steady flow of revenues. Ciena’s Q1 results surpassed analyst estimates as the networking platform provider benefitted by broad-based growth across all segments and regions. Stock price spiked more than 5% in the extended hours of the trading post the earnings beat.

Revenue improved 20.5% to $778.5 million and adjusted EPS more than doubled to $0.33, comfortably exceeding street estimates. For the Q1 period, analysts were expecting adjusted EPS of $0.30 and sales of $760.66 million. Ciena’s top three customers who bring in more than 10% of revenues contributed 35% to the top line, which is up nearly 2% improvement over the fourth quarter.

Ciena has been in the process of reducing its dependency from legacy telcos. As part of the diversification efforts, it has been focusing on adding more clients from emerging segments like web-scale providers, data center and network operators. The efforts seem to be bearing fruit for the firm. In the first quarter, non-telco revenues contributed more than 35% to the top line.

North American region brings in more than 60% of revenue to the company. Ciena needs to reduce its revenue share from the North American region. The company has been focusing on improving its marketing strategy in other markets to win new customers. It has been making concerted efforts in the Asia Pacific region. New client wins from the international market is expected to strengthen the top and bottom line. It would also help the firm to protect itself from any slowdown from the North American region impacting its financials.

Related: AT&T narrowly misses top line in Q4

Networking Platforms division recorded a 25% jump in sales primarily contributed by Converged Packet Optical product line’s 28% increase in revenues. Software and software-related services performance was dragged by lower sales from platform software and services. Maintenance and training revenues boosted the Global Services division top line by 5%.

Ciena has provided a three-year outlook for key operating metrics. Revenue is expected to improve nearly 6% to 8% annually, adjusted EPS is projected to jump 20% each year and adjusted operating margins are expected to touch 15% in fiscal 2021. Automation software Blue Planet is expected to generate $100 million to $120 million in revenues in the next three years.

Ciena’s stock has jumped 26% this year and has surged 82% over the last 12 months.

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