Sandvine Corporation (SNVNF, Financial) is a developer of network policy control solutions. The solution from the company’s end serves the broadband and wireless service providers, who require to manage network performance through deep packet inspection or DPI. In fact, Sandvine has emerged the leader in the DPI segment, though its revenue has been volatile almost every quarter. But the management is optimistic on the rising revenue, amidst such volatility noticed in the market. The DPI market growth could face some stagnation following the enactment of newer regulations in the U.S., but Sandvine seems to be unmoved. Here’s the entire story.
The volatility is bound to continue
From 2009-2013, Sandvine has built its revenue which has grown at a CAGR of 15.1%. But the revenue growth has been highly volatile. During the five-year period, revenue peaked to 47.6% as well as bottomed to a low of -2.7%. This volatility is mainly due to frequent delays in large projects to take shape for the company. In 2014, the volatility in revenue generation is being well felt. In the first half of this year, revenue grew at around 18% but in the third quarter revenue has grown only by 2.6% which is like the bare minimum required by the company.
Over the past years, the management has been able to diversify the revenue base, but the company seems to face volatility while seeking completion of large orders. Nevertheless, the revenue is expected to grow even in the upcoming future as the management have strengthened their partnerships to drive customer growth, and there are widespread expectations that the market will show a positive demand for DPI solutions even on the face of stricter U.S. regulations.
Retaining the market leadership
In 2013, Infonetics Research has estimated that service providers spent $728 million on DPI solutions. The firm further estimated that operators would spend more than $2 billion annually by 2018. Therefore, there is a demand perceived for DPI solutions which has been emanating from service providers and the public sector.
There are also estimates available that the U.S. government would be spending $1.8 billion on DPI solutions by 2018. Based on customer acquisition capabilities, Sandvine has emerged a market leader ahead of Allot Communication Ltd. (ALLT, Financial) and Cisco Systems (CSCO, Financial) targeting the largest 250 service providers and 350 wireless providers.
This far, management has done a great job in gaining customer trust around the globe. On the Q3 conference call, CEO Dave Caputo, stated –“Sandvine's customers include eight of the top 10 cable operators in North America and five of the top six...” He further discussed on a large competitive win in these words –“we announced a new Sandvine customer that is one of the ten largest cable companies in North America...The win was a competitive displacement of another stand-alone solution vendor...”
As the management remains optimistic on the capability to tap a larger customer base down the years, this will have a meaningful impact on the total revenue down the line. Fortunately, the management is also upbeat on the sales pipeline which they believe is strong enough to post good numbers almost every quarter.
To retain its leadership in this market and to outpace competition, Sandvine has entered into a partnership with International Business Machine Corporation (IBM, Financial), and as the latter has a vast base of analytic and business intelligence customers in its pipeline, it will also promote Sandvine’s growth in the long run. Leveraging such partnerships helps to drive the growth momentum of the company enlarge.
Remaining at the top
As the DPI market is expected to grow manifold due to the increasing demand from both the private and public sectors, Sandvine’s success story is bound to continue at full speed. Presently, its customer base includes 8 of the 10 largest cable companies in the U.S. Despite regulatory risk, the DPI market will grow as the FCC’s new proposal should not completely limit service providers’ ability to manage internet traffic. Also to be noted is that Sandvine’s products can be used by the U.S. government to help with cyber security. So, the revenue of the company should continue to trend higher which in turn will drive the stock to greater peaks in the near future. Thus, Sandvine’s future is still promising enough.
