Check Point Software Technologies (CHKP -0.31%) stock has enjoyed a terrific run this year, rising over 20%, sparked by a solid fiscal fourth-quarter earnings report in January. The cybersecurity specialist's guidance indicates that its consistent growth will continue in 2017 as the subscription business gathers more momentum.
Check Point Software is a long-term play on the cybersecurity opportunity, as the industry could be worth $120 billion this year and continue growing at an impressive pace in the long run.
Cybersecurity demand will grow at a stronger pace
The need for cybersecurity will get bigger as corporations and governments try to stop data breaches and losses.
A Check Point study found out that all consulting companies, 86% of government organizations, and 81% of retailers and wholesalers had seen a data loss event. A Mozy Enterprises study puts the cost of a typical data-loss event at over $400,000, and this is just one of the ways a cybersecurity slip can cost a company.
Not surprisingly, Markets and Markets expects cybersecurity spending to double during the 2015-2021 period, up from a compound annual growth rate of 5% from 2011 to 2015.
Check Point Software's top line has risen substantially in the past four years thanks to end-market expansion. Therefore, it won't be surprising if its revenue growth accelerates, as cybersecurity spending increases at a faster pace in the coming years.
Cloud and subscription growth will be catalysts
Check Point Software's subscription business has been growing at an impressive rate, accounting for 23% of its total revenue.
Growing subscriptions have substantially boosted Check Point's revenue and helped it to maintain its gross margin at an impressive 88% over the past three years despite a 15% bump in the cost of revenue, ensuring a steady revenue stream without any additional customer-acquisition costs.
More importantly, the booming subscription business boosted the company's deferred revenue to $1.06 billion at the end of last year, up 36% from 2014 levels.
Deferred revenue, which has yet to be recognized on the income statement, though the company has already collected it, should continue to grow as the company struck $1 million-plus deals with 99 customers in the fourth quarter, up 15% from the prior-year period. In addition, the company's average ticket size is getting bigger, with a 4-percentage-point increase in $50,000-plus transactions, which accounted for 76% of its total orders.
Moreover, Check Point has started providing security solutions to Alphabet's Google Cloud Platform, whose customers can use the cybersecurity specialist's vSEC cloud security product on a pay-as-you-grow basis or buy the license from the Google marketplace.
More importantly, Check Point's security solutions will help it take advantage of GCP's planned expansion into 10 new regions. A lot of GCP customers are interested in using the cloud for artificial intelligence and machine learning applications, and the scalable nature of Check Point's vSEC platform for high-performance applications makes it a good fit.
Check Point Software is growing where it counts by driving stronger subscription sales through key partnerships, which should fuel strong long-term growth.