Preannounces Q2 '24 Revenue Below Expectations; Lowers Guidance for FY '24
NetScout Systems (NTCT) preannounced Q2 ’24 revenue below our estimates and consensus. Reflecting a slowdown in order conversions during the last month of the quarter, Q2 revenue is expected to be $195.0-$197.0 million. Prior to revisions, we were projecting revenue of $224.0 million, while consensus stood at $223.6 million. We surmise the weakness in demand is most pronounced among NetScout’s service provider customers, but management also cited pockets of softness within the enterprise vertical. As these headwinds are expected to persist in the near-term, management also reduced its FY ’24 revenue outlook from $915.0-$945.0 million to $840.0-$860.0 million.
On a more positive note, non-GAAP EPS in Q2 is expected to reach $0.60-$0.62, exceeding our prior estimate and consensus of $0.54. Considering the slowdown in orders was not experienced until relatively late in the quarter, we suspect the upside likely reflects some combination of cost containment measures, reversals of prior bonus accruals and other benefits below the operating income line. That said, management is taking actions to reduce discretionary spending and realign expenses with the lowered revenue forecast, mitigating some of the impact from the softening demand environment. For FY ’24, management’s non-GAAP EPS guidance falls from $2.20-$2.32 to $2.00-$2.20.
We reduced our estimates for this year and next, primarily reflecting lower levels of product sales partially offset by operating expense reductions. Our price target also declines from $42.00 to $38.00 based on an unchanged FY ‘24 EV/EBITDA multiple of approximately 12x. Although we are disappointed to see NetScout join the ranks of those experiencing a slowdown in sales, we remind investors that the company has outperformed expectations for the past several quarters even as macroeconomic softness began to surface. Amid this backdrop, shares of NetScout have generally traded at an attractive valuation, in our opinion, given persistent fears of a slowdown. As such, should the after-market decline of 20% be indicative of where the stock settles today, we believe that would be a severe overreaction and offer a compelling entry point for long-term investors.
Our report with model and disclosures is available here.
Disclosure(s):
The analyst, a member of the analyst’s household, and/or an account in which the analyst exercises discretion hold(s) a long position in the common stock of NetScout Systems (NTCT).