The cybersecurity space certainly has lots of long-term potential. But there remain heavy risks for investors, as seen with Barracuda Networks (CUDA). On the heels of its latest earnings report, the stock is off by a grueling 34% to $15.50. All the more painful when you consider that the 52-week high on CUDA stock is $46.
OK, so what can investors now expect?
Well, first of all, let’s take a deeper look at the fiscal year 2016 second-quarter results for Barracuda Networks. And interestingly enough, the miss was not really significant.
Revenues for Barracuda Networks increased by 14% to $78.4 million and adjusted earnings came to $5.6 million, 10 cents per share, up from 8 cents per share a year ago. As for the Street, the estimate was for revenues of $78.7 million and earnings of 9 cents per share.
So then, what spooked investors off? Unfortunately, the guidance was pretty bad. For fiscal Q3, Barracuda Networks expects revenues of $79 million to $81 million and earnings to range from 7 cents to 8 cents. The consensus called for $82.5 million in revenues and 10 cents in earnings.
Oh, and the full-year forecast for Barracuda Networks was also far from robust. The company forecasts revenues of $320 million to $323 million and EPS of 34 cents to 36 cents. As for the consensus, it was for revenues of $325 million and earnings of 39 cents.
So yes, Barracuda appears to be in the deceleration mode. And this does seem kind of contrary to the trends in the cybersecurity industry, which point to strong growth.
But regarding CUDA, the company is not a pure-play cybersecurity operator. After all, it also operates a large storage business and must fight against big-time rivals like EMC (EMC). In fact, on the earnings call, CEO BJ Jenkins noted that the business has been feeling the pressure from “extended sales cycles.”
At the same time, Barracuda must deal with intense competitive pressures, with rivals like FireEye (FEYE) and Palo Alto Networks (PANW) quickly gaining ground. Unfortunately, Barracuda Networks has been slow to transition to the cloud.
Now, it’s true that CUDA stock has a much more reasonable multiple, trading at around 30 times trailing earnings. But for investors looking for a play on cybersecurity, there are certainly better alternatives.
For example, one that I recently covered is FireEye. FEYE has been cloud-focused since its founding, and also has a full suite of applications that cover major threat vectors like the web, email, file storage and networks. FireEye also does not use the typical approach to security — that is, reliance on identifying signatures — but uses sophisticated real-time, dynamic threat assessments. Besides, the company has an elite consulting arm that helps companies deal with security breaches. Some of its high-profile clients include Sony (SNE), Anthem (ANTM), Home Depot (HD) and Michaels (MIK).
So yes, CUDA stock does look fairly cheap right now. But then again, it could remain cheap as the company’s growth stalls. The good news is that there are a variety of compelling security plays for investors to consider.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
