At times, like any CEO pitching to the press, Kennelly shucks, jives, spins, and postures. He’s selling his company, delivering a marketing message, and trying to accomplish his media mission. Like other CEOs, he wouldn’t be doing the interview unless he and his company thought it could serve a practical purpose.
The overall message Kennelly delivers is that business is good for Riverbed, that it has a defensible leadership position over Cisco in WAN optimization, and that it foresees robust growth and bright prospects for years to come. Kennelly supports his optimistic outlook with carefully reasoned arguments, pointing to technology and business trends, such as data-center consolidation and virtualization, that play to Riverbed’s strengths.
I think he does particularly well explaining how and why Riverbed has been able to outperform Cisco at the upper reaches of the OSI protocol stack. At one point, he mentions that Riverbed is not alone in that regard. He notes that just as F5 Networks gave Cisco a beating at Layer 4-7 application traffic management, Riverbed did likewise in WAN optimization. It’s a an accurate observation, and it makes one wonder about what Riverbed and F5 might be able to accomplish together as technology and economic trends continue to furnish each company with growth opportunities.
Wall Street’s Built-In Protection
But the two companies are unlikely to get together, for reasons Kennelly cites late in the interview. As he says, not only is Riverbed not seeking to be acquired, but it’s also a company that the market has afforded with built-in protection against acquisition.
We’re actually somewhat protected by Wall Street because Wall Street shares the vision of Riverbed and has awarded us a strong earnings multiple on our stock price. It’s one of the top multiples. The type of people who would acquire you are the larger, slow growth companies, big technical companies. We’re a high-growth, high-multiple company. They’re all lower growth, low-multiple companies. It’s actually dilutive for them to try to do an acquisition of us. So we have some protection on that front of things. We desire to be a standalone, independent company for a long time, and I think we’re best served by that.
Indeed, Riverbed has a market capitalization of approximately $2.5 billion. It’s board would insist on a rich acquisition premium, so any buyer probably would have to part with a minimum of $4 billion to complete the deal. Some big, slower-growth, lower-multiple companies — and I could think of one or two — might be willing to consider such an arrangement, but growing, high-multiple F5, with its market capitalization of $6.8 billion, probably wouldn’t attempt to digest a meal that rich.
No Need for Private-Cloud Garnish
Where Kennelly slips in the interview, and it isn’t a fatal indiscretion by any means, is when he tries to invoke the ambiguous private cloud where it doesn’t belong. He explains, correctly, that Riverbed’s growth is being driven by data-center consolidation. Then, however, he suggests that data-center consolidation is a proxy for the private cloud, which, in Kennelly’s reasoning, leads ineluctably to the public cloud. Here’s the relevant excerpt:
Again, these data center consolidations are a proxy for private cloud computing and then public cloud computing. The genie’s out of the bottle on that. It’s not going back. The ability to connect at the application layer across networks is going to be a permanent requirement of everyone.
The interviewer rightly questions this doubtful syllogism, and Kennelly immediately retreats, waving the whole thing off with the following comment:
Either way, we get their business, whether they do it in the cloud format or in a very traditional corporate data center format. But yeah, I take your point. I’m not trying to push the cloud by the way.
Okay, maybe he wasn’t trying to push the cloud, but it definitely seemed that he was willing to take it for a marketing spin. From the tone and substance of the interview, it appears Riverbed’s marketing mavens must have pressed their CEO to cite the buzzy private cloud at every conceivable opportunity. His heart clearly wasn’t in the puffery, as the remark quoted above demonstrates.
Riverbed doesn’t need to gild the lily. It’s doing well enough without having to resort to buzzword legerdemain.