Needham has trimmed its price target for Extreme Networks (NASDAQ:EXTR) to $21.00 from $24.00 while leaving its Buy recommendation intact, following the company’s fiscal second-quarter 2026 report. The adjustment reflects a more cautious view on near-term margin dynamics even as the vendor delivered results that exceeded market expectations.
For the quarter, Extreme Networks posted revenue and earnings per share that topped consensus estimates by roughly 2% and $0.02, respectively. The company reported EPS of $0.26, versus the $0.24 analysts had forecast - an 8.33% surprise - and revenue of $318 million compared with an expected $312.32 million. Management also raised its fiscal 2026 revenue guidance.
Growth in recurring software was a notable driver of performance. Extreme cited continued strength in Software-as-a-Service annual recurring revenue, which increased 25% year-over-year. The company additionally recorded sequential improvement in the Europe, Middle East, and Africa region, which grew 16% quarter-over-quarter.
On the margin front, non-GAAP gross margin improved to 62%, a 70 basis-point uptick from the prior quarter. Despite that sequential improvement, management lowered gross margin guidance for the second half of fiscal 2026, attributing the adjustment to memory cost headwinds.
Needham highlighted its confidence in Extreme Networks’ campus fabric architecture as a differentiated product strategy. The firm said it expects that architecture to support market share gains against competitors such as HPE and Cisco. Notably, Needham left most of its financial estimates unchanged even as it reduced the price target.
Investors reacted positively to the company beating both earnings and revenue estimates, a development the company and market observers have pointed to as reinforcing Extreme Networks’ competitive position. The combination of revenue outperformance, raised guidance, and strong SaaS ARR growth underpinned that optimism despite margin pressure noted for the latter half of the fiscal year.
Key points
- Needham lowered its price target on EXTR to $21.00 from $24.00 but retained a Buy rating.
- Q2 results beat expectations: EPS $0.26 vs $0.24 expected, and revenue $318 million vs $312.32 million expected; revenue and EPS topped consensus by about 2% and $0.02 respectively.
- SaaS ARR grew 25% year-over-year and EMEA revenue rose 16% sequentially; fiscal 2026 revenue guidance was raised.
Risks and uncertainties
- Gross margin guidance for the second half of fiscal 2026 was lowered due to memory cost headwinds, posing a margin risk for the hardware and networking sectors.
- Margin pressure could affect profitability metrics and investor sentiment even if top-line growth continues, impacting enterprise networking and hardware vendors.