F5 Networks – Another Coinstar Moment

As stated in last week’s article, investors had reacted in two ways for earnings reports – Appeasements and Punishments. However, in the past week, there seemed to be more stocks with ‘coinstar’ moments, and one plunging stock can start dragging the whole sector. This is best illustrated by the action in F5 Networks, Inc. (NASDAQ: FFIV).

F5 Networks reported earnings on Jan 19. Like a lot of companies in this earnings season, it reported spectacular earnings and revenue compared to previous quarter. Nonetheless, the guidance on revenue was a little off from expectation for the following quarter: $275-$280 million vs $280.7 million. This was not really a big miss, but the reaction was violent. Its stock plummeted 20% following the news.

More importantly, this news helped to drag down a bunch of tech stocks, and put a dark cloud over cloud computing companies. For example, Juniper Networks (NASDAQ: JNPR) dropped ~4% following the news, Salesforce.com (NASDAQ: CRM) dropped ~6%, Citrix Systems (NASDAQ: CTXS) dropped ~4.5%, VMWare (NYSE: VMW) dropped 4.5%, etc. While previous crashers (e.g. Coinstar (NASDAQ: CSTR) and Cree (NASDAQ: CREE)) affected mostly their own stocks, F5 Networks started the trend on guilty by associations for this particular earnings season.

Netflix (NASDAQ: NFLIX) and Amazon.com (NASDAQ: AMZN) will be reporting earnings on Wednesday (Jan 26) and Thursday (Jan 27). These are high flyers with true momentum behind them, but expectations are also very high. In these two cases, it would be wise for investors who have a lot of gains on these two stocks to buy protections through put options prior to their reporting. In the case earnings are guidance are being met, the stocks still might not move up far right after, and the options can be easily peeled off. But in the case of disappointment, such cautions will be well worth it.

This article originally appears on benzinga.com


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