Riverbed's sales have increased 174 percent over the last three years. Revenue is expected to grow some 37 percent in the fiscal year that ends December 10. As a result, Riverbed's stock has skyrocketed. It has tripled year-to-date. Among stocks listed on the Nasdaq exchange with a market capitalization of at least $5 billion, Riverbed edges out Netflix as the top performer over the last 12 months.
Another networking company is not far behind those two. F5 Networks, which also markets products which speed network traffic, rounds out the top three in the mid-cap category. F5's stock has nearly tripled during the past 12 months, increasing by 179 percent during that time.
Netflix and Riverbed are the two top holdings of my Silicon Valley 2.0 portfolio, which has outgained by S&P by 28 percent annually. My iTech portfolio has also outperformed the S&P by 28 percent annually. Netflix and F5 are among the top three holdings of that fund.
Wide-area networks can span oceans and continents. Therefore, speed is a critical factor. Riverbed says its gear can make applications run up to 100 times faster.
"If you look at the marketplace, their product is far and away the best product for WAN acceleration, period, says Alex Henderson, an analyst at Miller Tabak. The WAN market, Henderson says, "is still in its infancy in many respects. I'd say there is a minimum three- to five-year cycle in front of us for very robust growth."
According to Riverbed's senior vice president Eric Wolford, "Cisco is by far our main competitor, by three or four times the frequency over any other competitor. After that, it's a big drop-off, then there's Blue Coat, then another big drop-off, then Juniper and five or six others."
Riverbed's CEO Jerry Kennelly believes very strongly that his small company is the future of networking.
"We live in the world of Layer 4 through 7 application delivery networking," says Kennelly. "Cisco is Layer 2 and Layer 3 plumbing, and while the last two decades have been the decades of plumbing, the next two are going to be the decades of the application - that's where the money's going to be. That's why we're growing and they're not."
WAN optimization involves eliminating the transmission of duplicate information between distant locations. The process can save enormous amounts of time and bandwidth. Riverbed, however, does not want to be a one-trick pony. It also has a virtualization product and, last month, introduced two new services. Riverbed's Cloud Steelhead product can speed the transfer of data to the public cloud and improve the performance of applications hosted there. Whitewater is the name of a separate product that accelerates cloud storage.
Meanwhile, F5, which was started in Seattle in 1996, makes gear known as "application delivery controllers" that allow Web sites to load faster and crash less often. Despite competition from Cisco, F5 has grown to become the market leader and has achieved a market capitalization of $11 billion.