Why A10 Networks Could Double

In a report published Friday, Pacific Crest analyst Brent Bracelin maintained an Overweight rating on A10 Networks Inc ATEN, while raising the price target from $10 to $11. The analyst believes that the stock valuation could double if the company achieves its growth turnaround.

According to the Pacific Crest report, “Demand trends are beginning to improve after a challenging 2014. The Q3 outlook confirms that revenue is on track to return to double-digit growth rates in the second half.”

Path To Recovery?

The 8 percent increase in revenue, quarter-on-quarter, in Q2 was driven by robust rebound in the Americas. The Enterprise segment also remained strong, growing 10 percent quarter-on-quarter, although it was flattish year-on-year due to tough comps.

“Tight expense controls, improving A/R collections and strong deferred revenue trends drove a reversal in operating cash flow that turned positive in the quarter,” Bracelin reported, while stating that this raised confidence that the company would be able to return to profitability by late 2016.

The 2015 and 2016 estimates have been raised to reflect the perception that the company is now on the path to returning to double-digit growth rates in 2H.

The analyst believes that the stock valuation could double to reach $11 due to “(1) revenue acceleration in 2H15, (2) TAM expansion into security, (3) continued enterprise momentum, (4) a return to profitability in late 2016 and (5) a compelling risk/reward.”

Q2 Results

Lee Chen, President and CEO of A10 Networks, said, “Our solid second quarter results are a result of A10’s growing business momentum and improved execution across our operations.”

The company reported 2Q15 revenue of 47.5 million, up from 45.1 million in 2Q14, with record total revenue and record enterprise revenue. A10 Networks also reported a sequential improvement in the bottom line, as well as positive cash flow from operations.

On a non-GAAP basis, the company saw Q2 net loss of $5.3 million or loss per share of $0.09, which compared to the net loss of $5.3 million or loss per share $0.09 reported for 2Q14.

“The investments we made last year have contributed to a growing pipeline while our security-focused Thunder ADC, CGN and TPS offerings continue to gain traction with new and existing customers,” Chen added.