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CyberArk CEO On Earnings Guidance: ‘We Don’t Call It A Miss’

Headline breaches drove 2015 cybersecurity spending, but the several-months-long lull in hacks won’t slug CyberArk Software ( CYBR ), company CEO Udi Mokady told IBD Friday, as shares sank after the company gave disappointing Q1 and 2016 earnings guidance late Thursday. CyberArk stock pitched to a 16-month low, toppling as much as 14% Friday. Shares were down 11%, near 32.50, in afternoon trading on the stock market today . Shares of fellow security vendor FireEye ( FEYE ), which also gave disappointing guidance, were down 5% Friday afternoon, touching an all-time low. But unlike Tableau Software ‘s ( DATA ) grim 2016 outlook last week, CyberArk’s and FireEye’s guidance misses didn’t spiral into a widespread security deluge. IBD’s 25-company Computer Software-Security was down a small fraction Friday afternoon. The group had soared 29% in the first seven months of 2015 on the heels of the Ashley Maddison, Anthem ( ANTM ) and U.S. Office of Personnel Management breaches. Thereafter, lacking high-profile breaches, the group plunged 40.5% in five months. CyberArk stock, too, was tugged down 38% in the back-half of 2015. But, Mokady says, while panic does play into stock prices, it doesn’t touch CyberArk’s sales. “Some vendors … are more driven by emergency spending and you need to be breached in order to dial their number,” he said. “We’re not seeing a change in demand. But we’re also a very prudent company.” Analysts are banking on that prudence. At least five analysts cut their price targets on CyberArk stock Friday, but at least three said the firm’s guidance was conservative. CyberArk Q4, 2015 Beat Estimates For Q4, CyberArk reported 39 cents earnings per share ex items on $51.5 million in sales, up 86% and 42%, respectively, vs. the year-earlier quarter, and topping the consensus model for 20 cents and $43.9 million. License revenue of $33 million accounted for 64% of revenue, Piper Jaffray analyst Andrew Nowinski wrote in a research report. Nowinski cut his price target on CyberArk stock to 55 from 67 but reiterated his overweight rating. “Demand remains very strong, highlighted by a book-to-bill ratio of greater than 1,” he wrote. “They even had some larger deals with oil/gas companies, despite increasing macroeconomic pressure on that sector.” For Q1, CyberArk sees $42.5 million to $43.5 million in sales, topping the consensus for $41.6 million, and up 30% at the midpoint. But the EPS ex items view for 15-16 cents trailed analyst expectations for 17 cents, and would be flat to down 6%. CyberArk guided to $205 million to $207 million in 2016 sales, up 27% at the midpoint and above expectations for $202.3 million. But the EPS view for 83-86 cents would be down 15.5% at the midpoint and missed the consensus model for 91 cents. Mokady said he doesn’t “call that a miss.” “We provided guidance we believe in, and I guess the consensus was different,” he told IBD. “We think the prudent strategy is for us to invest. … That’s been guiding us as we planned our 2016.” Attack Lull Slams Cyberstocks The lull between attacks drew cybersecurity stocks down, PureFunds CEO Andrew Chanin told IBD. Chanin runs the HACK ( HACK ) ETF which includes CyberArk, FireEye, Check Point Software Technologies ( CHKP ), Cisco Systems ( CSCO ) and Fortinet ( FTNT ). Symantec ( SYMC ) stock leads the Top 10. HACK stock was flat Friday afternoon, hurt by CyberArk’s plunge. “That sharp move down today caught me by surprise,” Chanin said, noting CyberArk’s Q4 metrics were largely within expectations. “Investors that got into the space over the past year are probably licking some of their wounds right now, because it has been a very volatile ride. “I don’t think we’ve had a catastrophic attack yet. That could be the next major catalyst for the industry. … Investing is partially emotional.” During last year’s 30-day Cyber Sprint, the federal government acknowledged its shortcomings in privileged account management, CyberArk’s bread-and-butter, Mokady said. Now, credential protection is almost “the basic action.” That spotlight should benefit CyberArk, Summit Research analyst Srini Nandury wrote in a report. Nandury cut his price target on CyberArk stock to 30 from 47 but maintained his hold rating. Nowinski, William Blair analyst Jonathan Ho and Dougherty analyst Catharine Trebnick noted CyberArk’s conservative guidance. Dougherty expects to see “several quarters of beat and raises in 2016.” FireEye Sees Widening Q1 Losses Wall Street offered FireEye stock a caveat Friday as at least five analysts cut their price targets: The company’s transition to a platform service is well underway. For Q4, FireEye reported $184.8 million in sales, up 29%, and a per-share loss of 36 cents, better by a penny vs. the year-earlier loss. Billings of $257 million jumped 21%. Sales were just shy of the consensus model for $185.3 million. Analysts had modeled a per-share loss of 37 cents. And Pacific Crest analyst Rob Owens noted FireEye posted “massive deceleration in billings and revenue.” But Owens rates FireEye stock overweight. FireEye’s 2015 sales jumped 46% year over year to $623 million, a hair short of the consensus model for $623.4 million. But its per-share loss of $1.30 was 67 cents better than the 2014 metric and beat Wall Street views for $1.62. Billings of $797 million grew 35% year over year. Current-quarter sales guidance for $167 million to $177 million, up 37% at the midpoint, was at the low end of analyst expectations for $167.9 million. And FireEye’s per-share loss outlook for 49-53 cents missed Wall Street’s model for 40 cents. For Q1, the company expects $163 million to $183 million in billings, up 14% at the midpoint. FireEye Makes A Platform Play FireEye’s subscription-as-a-service and product platform expansion “could position the company to be a premier facilitator of organizations’ broad cybersecurity needs,” William Blair’s Ho wrote in a report. The transition would put FireEye in rivalry with Palo Alto Networks ( PANW ), another platform peddler. But the shift in demand is a concern, Owens wrote. “We believe FireEye is executing well on becoming a platform play, but the sudden demand shift from physical appliances to cloud-based offerings creates near-term risk,” he wrote. During Q4, product revenue declined 2%, but subscription revenue jumped 57.5%. International sales grew 70%, helping FireEye recover from a Q3 belly flop that caused shares to dive in November. Further into 2016, Ho expects FireEye to balance its investments amid the slowing “reactionary spending” environment.

Cisco’s Steady Q2 Helps Soothe Jittery Enterprise IT Sector

Behind the scenes, Cisco Systems ( CSCO ) did what it was supposed to do last quarter, and did it a little more profitably: It provided reliable networking gear and helped others compute and communicate faster, even as formerly highflying enterprise technology stocks crashed. After Wednesday’s close, Cisco posted fiscal Q2 earnings and sales that beat analyst expectations, as did its earnings and sales outlook for the current quarter. The company’s CEO, however, acknowledged that things have been a bit dicey. While the first 10 weeks of the second quarter, through Dec. 31, were “very much in line with what we expected … (in) those last three weeks (through Jan. 23), we saw customers just pause a bit … to see what’s going on,” Cisco CEO Chuck Robbins said on the company’s earnings conference call with analysts. “The (data center) campus refresh activities, we saw customer say, ‘Hey, our infrastructure is working. Let’s hold on that (purchase) before we see which way we’re willing to go.’ ” Added CFO Kelly Kramer: “Our guidance is prudent. We expanded our range to three (percentage) points of range rather than two, because we see things as more volatile.” For the period ended Jan. 23, Cisco said per-share earnings minus items rose 7.5% from the year-earlier quarter to 57 cents minus items, while revenue slipped 1% to $11.8 billion. Excluding year-earlier performance from the television set-top box business Cisco recently sold, revenue rose 2% . Analysts polled by Thomson Reuters had expected 54 cents and $11.75 billion. A year before, Cisco’s EPS ex items had risen 13% to 53 cents, and sales grew 7% to $11.94 billion. Cisco completed the sale of its Technicolor set-top box unit on Nov. 20, for $600 million. Excluding that business, Cisco had guided Q2 adjusted EPS to 53-55 cents, on revenue of flat-to-2% growth. For fiscal Q3, Cisco guided to EPS ex items of 54 cents to 56 cents and to a year-over-year revenue rise of 1% to 4%. Analysts had modeled 54 cents and a 0.8% decline. Cisco is the No. 1 maker of the seldom-seen but increasingly used, lightning-fast switches, routers and other networking gear behind most telecom and Internet service providers, helping to run many data centers for many Internet cloud-based operations. Cisco stock was up 9% in after-hours trading, after the company released its earnings. In Wednesday’s regular session, shares fell 0.6% to 22.51, 25% off an eight-year high of 30.31, set last March. Smaller rival Juniper Networks ( JNPR ) was up 1.5% after hours, having fallen 1.7% to 21.62 in Wednesday’s regular session. Cisco’s latest results helped the outlook for information technology stocks, which crashed last week after data analytics software maker Tableau Software ( DATA ) and social media firm LinkedIn ( LNKD ) gave disappointing guidance. As global fears of a slowing economy rose, so did worries of slower IT spending. Analytics firm Splunk ( SPLK ), security vendor Palo Alto Networks ( PANW ) and cloud software leader Salesforce.com ( CRM ) were among stocks that fell hard last week, though the latter two have recovered somewhat this week. Splunk and Palo Alto were up a fraction after hours Wednesday, but Tableau and Salesforce were down a fraction. Cisco: Challenging Macroenvironment “We delivered a strong Q2 and are managing the business extremely well in a challenging macro environment,” Robbins said in the company’s earnings release. “We’re managing the company on two fronts. We’re focused on continued strong execution in the near term, while investing in the innovation to lead our customers into the future.” As with the sale of its set-top box business, Cisco has been shedding slow-growth lines of business while making acquisitions in faster-growing arenas. Last week, Cisco announced its agreement to acquire Jasper Technologies, which delivers a cloud-based Internet of Things (Iot) service platform, for $1.4 billion. The deal is expected to close this fiscal quarter. The company last quarter also completed the purchases of Portcullis, a digital security operation; Lancope, a security analytics firm; ParStream, another analytics specialist; and 1 Mainstream, an on-demand streaming-content company. And on the call, Cisco executives said they recently completed the acquisition of Acano to help accelerate Cisco’s collaboration strategy to deliver video more broadly. In November, Cisco entered a “strategic partnership” with Ericsson ( ERIC ) which both companies say will improve their sales by the second half of this fiscal year. Robbins told analysts that Cisco and Ericsson “have begun to close transactions together. I would not translate that to any of the numbers we put out today. … We’re at the handful stage right now, but we see that accelerating.” “We delivered a strong Q2, and are managing the business extremely well in a challenging macro environment,” Cisco CEO Chuck Robbins said in the earnings release. “We’re managing the company on two fronts. We’re focused on continued strong execution in the near term while investing in the innovation to lead our customers into the future.”

Could ‘More Nimble’ Security Rivals Swipe Qualys’ Market Share?

DA Davidson analyst Jack Andrews likened Qualys’ ( QLYS ) disappointing Q4 to the 1994 action flick “Speed.” And even Keanu Reeves and Sandra Bullock would struggle to pilot this speeding vehicle. “Qualys reminds us of an automobile driver who is trying to simultaneously replace critical engine parts while maintaining an appropriate speed limit on a busy road,” Andrews wrote in a research note Tuesday. “There are simply too many moving parts to fully support a buy rating.” Andrews downgraded Qualys stock to neutral and cut his price target to 25 from 51. At least three other analysts slashed their price targets on Qualys stock after the cloud security vendor late Monday reported Q4 and 2015 sales that missed Wall Street views. Its Q1 guidance also lagged the consensus. Qualys stock was down 23% in afternoon trading in the stock market today , hitting a 30-month low near 17. For Q4, Qualys reported 21 cents earnings per share ex items on $44.4 million in sales, up 40% and 21.5%, respectively, from the year-earlier quarter. EPS topped expectations for 17 cents, but sales missed the consensus of 16 analysts polled by Thomson Reuters for $44.6 million. Qualys ended the year with $164.3 million in sales and 70 cents EPS ex items. Current-quarter sales guidance for $44.7 million to $45.4 million would be up 20% at the midpoint, but that’s more than $1 million short of the consensus. EPS guidance for 14-16 cents missed Wall Street views for 18 cents. New Products Could Buoy Growth Last quarter was Qualys’ slowest in more than two years, Pacific Crest analyst Rob Owens noted in a research report. Owens rates Qualys stock as sector weight. Vulnerability management (VM) comprises 78.7% of Qualys’ Q4 sales and grew 18% vs. the year-earlier quarter and 19% for the year, Credit Suisse analyst Sitikantha Panigrahi wrote in a report. Noncore products — Web application scanning, policy compliance and Web application firewall — rose 35% year over year in Q4, but decelerated sequentially from 40% growth in Q3 and 50% in Q2, Panigrahi wrote. Panigrahi reiterated his outperform rating on Qualys stock but cut his price target to 35 from 45. But Summit Research analyst Srini Nandury reiterated his buy rating on Qualys stock but dropped his price target to 35 from 50. Nandury expects at least 20% near-term sales growth on new product launches this month. The new series will be based on Qualys’ ElasticSearch capabilities and Cloud Agent platform, Qualys CEO Philippe Courtot said in the company’s earnings conference call. “Many businesses are yet to deploy VM solutions in any meaningful way,” Nandury wrote in a report. “Upcoming products are expected to contribute meaningfully by year-end.” Security Stocks Hit In High-Tech Sell-Off Yet, Pacific Crest’s Owens questioned whether Qualys could maintain its VM leadership in a tough market. IBD’s 41-company Computer Software-Security industry group closed down nearly 7.2% Monday, after falling 7.4% Friday. The group was down another fraction midday Tuesday and touched its lowest point since June 2014. “We continue to believe that Qualys is beginning to cede share to smaller, more nimble competitors in their core VM space, and that others may offer a stronger value proposition with their complementary solutions and messaging,” Owens wrote. Smaller rivals include Rapid7 ( RPD ) — a $408 million market value to Qualys’ $609 million — and privately held Beyond Security, Critical Watch, Core Security, SAINT, Tenable Network Security and Tripwire. Owens added: “While everything is ‘on sale’ in this bear market, we prefer names that could offer more upside should things stabilize.” The unstable stock environment got no help last week from weak quarterly reports from LinkedIn ( LNKD ) and Tableau Software ( DATA ). Cybersecurity competitors Palo Alto Networks ( PANW ) and Proofpoint ( PFPT ) were recovering somewhat Tuesday, both up 1% Tuesday afternoon, but FireEye ( FEYE ) stock was down 2.5% Tuesday afternoon, after falling 9.5% Monday.