Pre-Earnings, Barracuda Still Totes Bearish Imperial Capital Thesis

Imperial Capital’s Michael Kim expects Barracuda Networks Inc CUDA to report its FQ3:16 results ahead of the consensus but in line with the estimates, when the company announces its numbers on January 9.

Kim maintains an Underperform rating on the company, with a price target of $20.

Earnings Expectations

“We estimate F3Q17 revenue of $88.9 million and adjusted EPS of $0.15. Consensus estimates revenue of $86.6 million and adjusted EPS of $0.14. We anticipate F3Q17 results consistent with our estimates,” the analyst elaborated.

Kim noted that field checks suggest robust growth in cloud email security, driven by Barracuda Essentials for Office 365, and that Barracuda Networks’ competitive position remains largely unchanged.

The analyst expects the company to deliver upside to the estimates, driven by public cloud opportunities, although there might be increased competition from larger vendors.

Core subscription ARR is expected to have grown 23 percent year on year and to account for 56 percent of the total subscription ATT, excluding the non-core business.

Headwinds

“We see sustained headwinds to sales of the company’s hardware appliances, given customers’ migration to cloud infrastructure, which could increasingly erode subscription ARR related to legacy on-premise solutions,” Kim mentioned.

Field checks also indicate meaningful competition from larger network security vendors, especially for Barracuda Networks’ firewall products.

The analyst also expects appliance revenue to decline by about 5 percent year-on-year in FQ3:17, accounting for 23 percent of the total revenues.