Please ensure Javascript is enabled for purposes of website accessibility

Why Barracuda Networks, Inc. Plunged on Wednesday

By Anders Bylund - Sep 30, 2015 at 12:56PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Did the cloud storage and security expert truly deserve a 33% haircut today?

This web app firewall couldn't protect Barracuda's share prices on Wednesday. Photo: Barracuda Networks.

What: Shares of Barracuda Networks (NYSE: CUDA) fell more than 33% on Wednesday, following the release of disappointing results for the second quarter of fiscal year 2016.

So what: The maker of storage and security products for cloud-related computing platforms delivered mixed results in the second quarter. Adjusted earnings rose 25% year over year to land at $0.10 per share, beating analyst estimates by a penny. Revenues rose 14% to $78.5 million, a rounding error below Wall Street's consensus targets. Not too shabby, and certainly no reason for a 33% haircut.

Indeed, Barracuda shares rose modestly on the earning release itself. But the bottom fell out during management's earnings call with analysts, where they slashed the revenue outlook for the second half of fiscal 2016.

The original forecast had called for approximately 17% sales growth and 39% higher earnings per share for the entirety of 2016. The midpoints of the new guidance ranges fell to roughly 12% higher sales and 25% earnings growth, well below the current analyst views in both cases.

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.

Now what: The soft forecasts were based on macroeconomic and industry trends, both beyond Barracuda's direct control. Currency headwinds refuse to abate, and the turbulent state of the global enterprise storage markets isn't helping Barracuda either.

On the heels of this plunge, Barracuda shares are trading at the lowest levels seen in the company's young life as a publicly traded stock -- by a wide margin. Still, the revenue guidance cuts left some of Barracuda's staunchest supporters adjusting their views.

Analyst house Piper Jaffray, for example, slashed its price targets from $40 to $20 and lowered its rating to "neutral." The firm is losing patience with missed revenue targets and lowered growth guidance, noting that Barracuda's security division isn't outperforming the supposedly market-challenged storage segment.

All told, Barracuda remains a rapidly growing business with a greedy eye on the crucial Internet of Things market, and the stock might not deserve the kind of market backlash it has suffered recently. Opportunistic investors might want to reconsider Barracuda at these low prices, even if management has a troubling tendency to overpromise and underdeliver.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.