Here of late it seems like it's always something at Riverbed Technology (Nasdaq:RVBD). First, management blames turnover in its European operations for one bad quarter, then it's a slowdown in order due to upcoming new products. Now it's "poor sales execution" and deal slippage. When it all comes right down to it, though, investors now have ample reason to ask if this management team is one they can trust to deliver the goods on a sustained basis.
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ADQ - Another Disappointing Quarter
To be fair, Riverbed's first quarter wasn't so bad, but that was after a weak guidance had already led analysts to cut numbers down. Revenue rose 12% from last year, but fell around 10% from the fourth quarter - roughly following the seasonal hardware trends seen in other names like IBM (NYSE:IBM) or EMC (NYSE:EMC). Product sales were especially weak, though, as they fell almost 17% from the fourth quarter.

Margins slid accordingly; gross margin fell almost two points from last year, with product gross margin down more than two and a half points. Operating income dropped 41% year-on-year and nearly 50% sequentially.

More Bad Guidance
Like the last quarter, Riverbed reported a quarter that was a little weak and then followed it up with guidance that was quite poor. Management had some excuses at hand, including poor sales execution, deal slippage and issues managing multiple product rollouts (part of sales execution).

Unfortunately, Wall Street is increasingly souring on WAN optimization and Riverbed's place in the market. Compared to the ADC market that F5 Networks (Nasdaq:FFIV) dominates, Riverbed's WAN optimization market seems to be growing much more slowly, suggesting that even if the market isn't fully penetrated, the low-hanging fruit is in the bag already. What's more, it's hard to completely talk away the idea that Cisco (Nasdaq:CSCO) and F5 are plucking away what remains of the attractive business.

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Can Management Juggle More Than One Ball?
Investors now need to ask themselves if Riverbed's management is up to the task at hand. Multiple product introductions (including Granite, Stingray and refreshed Steelhead appliances) and acquisition integration (Zeus) take a certain excellence of execution and the early returns on Riverbed's management are not favorable in that regard.

The Bottom Line
Fortunately for Riverbed, Blue Coat is still in WAN optimization and arguably even less well-run. So at least the company has the prospect of some competitive share gain. The bigger questions, though, revolve around the real long-term pace of growth in WAN optimization and the company's ability to penetrate new markets. So far, F5 has shown encouraging results with its new market opportunities, while Riverbed has not.

Even with chopped-down numbers, Riverbed shares look interesting. Fair value could lie somewhere in the mid-$20s right now if Riverbed can stem the damage and start delivering. This is a very risky stock, though. If my assessment of management is wrong and unduly harsh, this could be a time for brave investors to step up and buy, but if management here is truly overmatched, the painful downward spiral could accelerate from here.

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.