Here's Why ZixCorp Shares Sank

ZixCorp reported modest growth in the first quarter but still troubles investors with its outlook. Find out whether this dip is a buying opportunity or a reason to avoid this stock altogether.

Apr 23, 2014 at 1:34PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of ZixCorp (NASDAQ:ZIXI), a provider of email encryption and data loss prevention software to government and the health care, financial, and insurance industries, dipped as much as 13% after the release of the company's first-quarter earnings results last night.

So what: For the quarter, ZixCorp reported a 3.4% increase in revenue to $12.2 million, with its backlog increasing 10.6% to $65.9 million, but new first-year orders also declining 5.3% to $2 million. Adjusted profit inched up by just 1.2% to $0.03 per share. By comparison, Wall Street was anticipating $12.3 million in revenue and $0.03 in EPS, so this was more or less in line. Where investors' shares were "bugged" was with regard to ZixCorp's second-quarter guidance. The company is calling for $12.3 million-$12.6 million in revenue and EPS of $0.02-$0.03, whereas the Street was looking for $12.9 million in revenue and a profit of $0.04 per share. The good news is that ZixCorp is reaffirming its full-year guidance of $0.15-$0.17 in EPS on $53 million-$55 million in revenue, right in line with expectations.

Now what: ZixCorp has been one disappointment after another. For more than a decade now I can recall the buzz surrounding its digital-encryption technology, and during that time hackers and would-be thieves have only gotten smarter. You would think that a network security provider would have absolutely no issue growing its top line, but that simply isn't the case with ZixCorp. On the bright side, the company is profitable and it's getting aggressive with the marketing of its product, which I hope will translate into much better growth for the sake of shareholders. But until we see that much improved performance, I would suggest taking a wait-and-see approach.

ZixCorp may offer shareholders a lot of potential, but there's a good chance it may not be able to keep pace wit this top stock in 2014
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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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