Radvision: Another Quarter, Another Warning

Radvision (RVSN), an innovator in the video-conferencing over IP, wireless and desktop markets, lowered its revenue forecast for the 3rd quarter on Monday. The stock, in turn, was squashed. In late July, the company had forecasted revenues of $25 million (this was the first lowering of estimates as analysts had expected almost $27 million in revenue), and on Monday lowered expectations to $20.5 million. In Q3 of 2006 Radvision produced $23.6 million in revenues. Here we have have a company that keeps saying that it is in such a hot, video-conferencing, space, and it has shrinking revenues.

In a slightly bizarre comment, Boaz Raviv, the Chief Executive Officer, commented:

We are disappointed by this setback in the third quarter but remain fully confident in our strategy and market position and in the growth prospects of videoconferencing in the enterprise and service provider markets.

The company added that,

its revised third quarter outlook reflects a reduced revenue forecast for its Networking Business Unit (NBU) due to lower than expected sales both to the federal market and through its channels.

Could it be that the company has neglected growing the business by getting new customers, and been relying too much on its relationship with Cisco (CSCO)?

About three weeks ago the stock was upgraded by analysts. Ouch! Since the upgrade the stock has gotten crushed, but I believe the argument that it made still holds water. The upgrade came on the heels of Tandberg ASA, a Radvision competitor, announcing that it would acquire a third video conferencing company, U.K.-based Codian Ltd., for $270 million, thereby beating others to the punch. It was thought that Cisco was also interested. Analysts viewed this deal as a win for Radvision as it soldifies its relationship with Cisco. It’s great that this is stronger than ever, but I go back to what I previously mentioned. Shouldn't it try and grow business outside of Cisco?

We all know the danger of having just one big customer. At $14.50 the stock looks interesting. Okay, so I said the same thing at $20, but now it’s even 25% cheaper. “Instant Rebate” Katsman can smell a good deal.

I would say that regardless of its relationship with Cisco, if we don’t start seeing some real growth, I would be a seller. But, let’s give it a bit more time.

Disclosure: The author’s fund is long RVSN as of October 2, 2007, but has no positions in any other companies mentioned.