Barracuda Networks Earnings: Can They Grow Fast Enough?

The newly public cloud security company has promise but also a rich valuation.

Jul 8, 2014 at 11:00AM

On Thursday, Barracuda Networks (NYSE:CUDA) will release its quarterly report, and investors seem to be waiting to see if the network and data-security services provider can live up to its potential. Even though Barracuda went public less than a year ago, it still faces the challenge of carving out a niche from among Palo Alto Networks (NYSE:PANW), Check Point Software (NASDAQ:CHKP), and other competitors seeking riches from the red-hot cloud-computing space.

Barracuda focuses on three different markets within the information technology realm: content security, networking and application delivery, and data storage and protection. Although the company is arguably best known for email- and Internet-security products, Barracuda aims to provide much broader solutions to its customers to optimize their overall network efficiency. Yet with Palo Alto Networks and Check Point Software going after many of the same customers, can the upstart keep up the pace? Let's take an early look at what's been happening with Barracuda Networks over the past quarter and what we're likely to see in its report.

Cuda
Source: Barracuda Networks.

Stats on Barracuda Networks

Analyst EPS Estimate

$0.03

Year-Ago EPS

($0.09)

Revenue Estimate

$64.38 million

Change From Year-Ago Revenue

14.4%

Earnings Beats in Past 4 Quarters

2*

Source: Yahoo! Finance. * Out of two quarters since going public.

Can Barracuda earnings keep climbing this quarter?
In recent months, investors have boosted their views on Barracuda Networks earnings as they've more than tripled their estimates for the currency fiscal year and boosted their projections for next year by almost 50%. The stock, though, has been in more of a holding pattern, falling 4% since early April.

Barracuda Networks' quarterly report in April verified the extent to which the cloud-connected security and storage-solutions provider has taken advantage of the increase in interest for cloud-based products. Revenue jumped 15%, with recurring subscription making up more than two-thirds of Barracuda's total sales. With its growth, Barracuda's subscriber count topped the 205,000 mark, and the company's cross-selling efforts have been largely successful as customers with more than one product jumped 26% from year-ago levels.

Cuda
Source: Barracuda Networks.

Much of Barracuda's success has come not just from interest in the area generally but from its own mix of products. For instance, Barracuda stock rose sharply in early May as investors were pleased to see a competitor's strong results confirm what Barracuda itself had reported shortly beforehand. At the same time, though, Barracuda announced that it had extended its virtual private network to work with remote mobile devices, allowing clients' workers to use their own devices to conduct business on networks without worrying about security issues.

Yet Barracuda faces stiff competition. Palo Alto Networks in particular has the potential to gain market share among enterprise customers with its firewall products, which are designed to help protect corporate data centers with customized features. Moreover, Check Point Software has seen strong sales in North America, although Palo Alto has proven to be a thorn in its side in the Asia-Pacific region.

Nevertheless, the opportunity in the security space is huge. Recent threats have highlighted the necessity for companies to protect customer data, and Barracuda's firewall products are specifically oriented toward providing next-generation security at a price that's accessible even for mid-market customers. Even with plenty of competition, Barracuda Networks can succeed even if it only captures a piece of the growing cloud-computing market.

In the Barracuda Networks earnings report, watch to see whether the company is able to sustain its growth trajectory. With shares trading at levels that imply rapid advances in revenue and earnings, anything short of high expectations could send the stock down sharply.

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Dan Caplinger owns shares of Apple. The Motley Fool recommends Palo Alto Networks. It recommends and owns shares of Check Point Software Technologies and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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