The Internet can be a frightening place -- teeming with spyware, bots, viruses, and adware -- but it's also an opportunity for security companies like Motley Fool Stock Advisor pick McAfee (NASDAQ:MFE).
Just look at the company's latest quarterly results: Revenues increased from $235.7 million to $272 million. Wall Street expected about $262.2 million.
The bottom line was also impressive: Earnings were $40.9 million, or $0.25 per share, which was up from $36 million, or $0.21 per share. Net of stock option expenses, acquisition-related fees, and what the company classified as "SEC compliance fees," earnings came in at $62 million, or $0.37 per share, compared to the Wall Street consensus of $0.30 per share.
Like Salesforce.com (NYSE:CRM), McAfee delivers its service using an on-demand model; that is, the software is delivered through the Internet. Thus, there's no need to get update CDs. This is critical for security, since virus outbreaks can spread quickly.
In the first quarter, McAfee added 1.9 million net new subscribers. The total is now about 19.2 million.
Since McAfee sells its software through subscriptions, revenue must be recognized over several years. This can actually stunt growth. On the other hand, it means that the revenue will soften the typical volatility of a software company. Currently, McAfee has about $776 million in deferred revenues, which will be a source of growth for the next several years.
McAfee certainly has tough competitors, such as Symantec (NASDAQ:SYMC) and Microsoft (NASDAQ:MSFT). As for Symantec, it has been diversifying its business through acquisitions and appears to be distracted. And Microsoft is still having problems getting traction.
McAfee has the advantage of being laser-focused on security. To this end, the company has made several important acquisitions, such as SiteAdvisor. And SiteAdvisor does something quite useful: It rates nearly every site on the Internet for threat problems. For example, you can search Google (NASDAQ:GOOG) or Yahoo! (NASDAQ:YHOO) and see security ratings for each search result.
With a strong stock price and $1.1 billion in the bank, McAfee can continue to buy companies and expand its solution offerings. And given that the need for security products is not going away and that the company has a strong recurring revenues base, I feel McAfee is positioned to continue to grow.
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Fool contributor Tom Taulli does not own shares of any company mentioned in this article.
