After Another Solid Quarter, is Barracuda Networks Inc. Poised to Outperform?

Barracuda Networks just turned in its third consecutive quarterly beat. Here's what investors need to know.

Jul 11, 2014 at 10:52AM

Barracuda Networks stock, Palo Alto Networks stock

Barracuda Networks just beat analysts' estimates for the third consecutive quarter, Credit: Barracuda Networks

Another quarter, another solid beat from Barracuda Networks (NYSE:CUDA).

Despite operating in an increasingly crowded space occupied by the likes of its larger peer in Palo Alto Networks (NYSE:PANW), the cloud security and storage specialist just exceeded Wall Street's expectations for the third time in as many quarters since going public last November. Shares of Barracuda Networks climbed nearly 3% in after-hours trading Thursday, extending a 2% jump during the regular session.

The numbers
Specifically, Barracuda Networks' quarterly gross billings grew 17% year-over-year to $87.6 million, while quarterly revenue grew 18% over the same period to $66.2 million. Of that, roughly 69% came from recurring subscription sales, as Barracuda's total active subscribers rose by more than 8,900 to over 214,000. Analysts, on average, were only looking for revenue of just $64.4 million. 

Meanwhile, Barracuda also appeased investors' worries over whether it could live up to ever-increasing earnings expectations: Adjusted EBITDA grew 61% year-over-year to $19 million, while trailing 12-month free cash flow jumped 28% to $42 million. As a result, adjusted net income rose to $3.6 million, or $0.07 per diluted share, up from just $0.02 per diluted share in the same year-ago period. Once again, that easily outpaced analysts' expectations for earnings of just $0.03 per share.

On a GAAP basis -- which includes pesky items like stock-based compensation and one-time acquisition charges -- note Barracuda networks actually swung to a small profit of $151,000. That might not sound like much, but it's a huge improvement over the $2.4 million GAAP net loss it turned in as a privately held company this time last year. As Barracuda continues to grow, its levels of true profitability should only look more attractive going forward.

On guidance
Finally, Barracuda raised guidance for its full fiscal year, as it now expects earnings in the range of $0.14 to $0.18 on revenue of $270 million to $274 million. By comparison, analysts went into the report modeling full-year earnings of just $0.14 per share on sales of $270.27 million.

So what is Barracuda Networks doing right? For one, it places a huge amount of emphasis on creating powerful security and storage solutions which are also easy to implement -- and as a former IT geek myself, I can personally attest that isn't always the case. Among a handful of its new product releases this quarter, for example, stood the extended functionality of Barracuda's SSL VPN solution, which enabled businesses to offer employees improved remote access to internal web applications and files from nearly any mobile device.

But Barracuda also isn't alone in its relative outperformance, either. Palo Alto Networks, for example, which chases many of the same clients, is expected to post even more impressive annual revenue growth of 47% this year, and is riding a wave of momentum after releasing its own solid quarterly results in late May. And much to investors' excitement, Palo Alto simultaneously announced the long-awaited resolution of a patent infringement case with Juniper Networks. Over the long-term, that should ultimately reduce Palo Alto's cumbersome litigation costs and prop up its bottom line.

Foolish takeaway
Now don't get me wrong: Shares of Barracuda Networks don't look particularly cheap trading at just over 7 times trailing 12-month sales, and 155 times next year's estimated earnings. But we're also talking about a relatively fast-growing company which is just crossing over into sustained long-term profitability. And with the cloud-computing space effectively still in its infancy, there should be room for multiple companies to survive and thrive. If Barracuda Networks' results today are any indication, I think it could be poised to further reward patient shareholders going forward.

Warren Buffett: This new technology is a "real threat"
Speaking of young industries, Warren Buffett recently admitted another emerging technology is threatening his biggest cash-cow. And while Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Palo Alto Networks. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information