Monday morning, Aerohive Networks preannounced third quarter 2014 results, with revenue expected to come in near $34.5 million to $35.5 million, short of management’s $38.0 million to $40.0 million guidance target. Non-GAAP gross margin is expected to remain in line with expectations at 67.5% to 68.0%. As a result of the top-line weakness, the non-GAAP net loss per share is expected to come in between $0.10 and $0.12, compared with the original guidance range of $0.08 to $0.10.
Management attributed the top-line shortfall to soft order volume in regions where the company’s salesforce has not yet ramped up to expectations, which has caused inconsistent performance from those areas. Management noted that regions with fully developed sales capacity performed mostly in line with expectations. Accordingly, management pegged the miss solely on internal sales missteps and not reflective of any shift in the market for wireless local area network (WLAN) solutions in general or Aerohive products in particular. To this end, management noted the addition of more than 1,500 new end-customers in the quarter and reiterated its confidence in the company’s long-term strategy and market opportunity. Aerohive will report full third-quarter results on Wednesday, November 5, after the markets close.
Aerohive’s guidance miss in only its third quarter as a public company is obviously disappointing, although warning signs have been increasing recently. Reseller discussions revealed that the company was having some internal sales issues with supposedly heavy turnover among the salesforce, likely leading to the ramp-up and execution issues.
Also, competitive and go-to-market hurdles for Aerohive appear to be increasing. From a go-to-market perspective, Aerohive maintains heavy exposure to education, mostly among K-12 institutions. With the education vertical’s spring/summer buying season beginning to wane in the fall, we would not be surprised if management overshot expectations on maintaining the spring/summer momentum. In general, this drives home the need for Aerohive to do a better job diversifying into other verticals.
Reseller feedback on controllerless solutions from Aruba (Instant) and Cisco (Meraki) has been notably strong and has indicated an aggressive focus for both companies in this area (particularly when going against Aerohive). In general, while Aerohive maintains the best controllerless solution from a technical perspective, the differentiation continues to dissipate. Ultimately, it is likely that Aerohive has fallen to No. 3 in the controllerless Wi-Fi market, as Cisco’s Meraki-derived revenue is certainly above Aerohive and we speculate that Aruba’s Instant-derived revenue has recently surpassed a $100 million annual run-rate.