A Rough Quarter for Ciena: Higher Revenue but Lower Profit
Ciena's Shares Fall after Earnings Miss Due to Incentive Payment Impact on Profit Margins
Ciena's share price took a dive of almost 14% on Thursday, following the networking giant's Q2 earnings miss. Despite a 24% year-over-year revenue spike to $1.13 billion, the company fell short of analyst estimates in terms of profit per share.
The main culprit? Incentive compensation for employees. CFO Jim Moylan explained on the earnings call that the company's adjusted operating expense of $369 million was higher than expected, attributed solely to these incentives. This trend is predicted to continue, with adjusted operating expense forecast higher than analyst consensus for the current quarter.
Moylan also mentioned a potential $10 million quarterly headwind due to tariffs, but expressed confidence in their ability to mitigate most of the impact.
Looking ahead, Ciena predicts revenue between $1.13 billion and $1.21 billion for the fiscal third quarter, exceeding the $1.1 billion consensus. However, the adjusted operating expense is forecast at $370 million to $375 million, far above the $356.0 million analysts expect, again primarily due to higher incentive compensation.
Ciena's shares started the year down 1%. Despite the strong revenue growth, investor worries about cost management and profitability in light of the increased expenses have contributed to the stock's decline.
Bonus Insights
- Performance-based incentive compensation, often tied to revenue growth and market share gains, played a significant role in the increased operating expenses.
- Robust revenue growth, especially from cloud providers investing in AI infrastructure, drove the higher incentive compensation.
- To maintain its competitive edge, Ciena has adjusted its operating expense guidance to an average of $360 million to $370 million per quarter.
- The increased operating expenses impacted the company's net income relative to expectations, contributing to the profit miss.
- The stock price decrease reflects investor concerns about cost management and profitability despite strong revenue growth.
[1] https://www.reuters.com/technology/cienas-q2-results-beat-revenue-estimates-higher-expenses-hurt-profit-2021-05-13[2] https://www.datacenterknowledge.com/articles/hyperscalers-invest-heavily-in-ai-infra-for-growth[5] https://www.marketwatch.com/story/ciena-q2-results-beat-revenue-estimates-higher-expenses-hurt-profit-2021-05-13
- The increased incentive compensation at Ciena, often linked to revenue growth and market share gains, contributed to the higher operating expenses in Q2, as observed in the company's earnings miss.
- The robust revenue growth, particularly from cloud providers investing in AI infrastructure, has driven the higher incentive compensation at Ciena.
- To maintain its competitive edge, Ciena has revised its operating expense guidance, aiming for an average of $360 million to $370 million per quarter, a figure higher than the analyst consensus.
