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Can Fortinet Hold Its Momentum?

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By Richard Saintvilus, The Motley Fool

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Within the past couple of months, Facebook, Microsoft and Apple, each have reported some type of user account or network breach. This has placed quite a bit of attention on enterprise security companies such as Fortinet to raise its defenses. And I don’t think it’s coincidence that the stock has risen as much as 35% during that span.

While Fortinet has also benefited from an excellent fourth-quarter earnings report, these shares have now reached expensive territory — at least when compared with Check Point . Not to say that the stock can’t go higher, but the added premium has to come from somewhere. Can Fortinet deliver? And given the increased popularity in smaller players such as Palo Alto Networks and Sourcefire, it’s also worth asking whether Fortinet’s momentum can negotiate with current value.

Is being better enough?
The security services industry has become congested. Everyone’s looking to get in position for the growing demand of threat prevention. The good news, though, is that there are plenty of knucklehead hackers out there who will keep the industry booming for quite some time, which is a good thing for investors, in a manner of speaking.

However, though, while the pie might get bigger, it only means that the competition will want bigger pieces. Investors will demand it. But it won’t be easy. Market share will be based on what CIOs think is the best solution for their network. To that end, Fortinet is getting high praise over rivals such as Check Point and Dell‘s SonicWall.

A recent intrusion prevention system, or IPS, test-performed by Network World, which used a security test tool called Mu Dynamics, concluded that Fortinet had the highest catch rate among its peers. Those performing the test said: “In most products, we saw less than two percentage points of difference between the two sets, meaning that there’s very little tuning of the IPS possible. Fortinet’s FortiGate was the exception, showing a 10% to 25% difference in attacks blocked, offering the network manager more tools to match the IPS to their network.”

That’s great news for Fortinet, which just also landed a significant contract with Eurosport, the No. 1 pan-European TV sport network, which said it will deploy FortiGate to protect employees across 17 countries in Europe, the Middle East, and Asia. While this announcement is new, there was also an extensive study by Eurosport’s IT department before Fortinet won the contract, which revealed that FortiGate’s performance levels were three times higher than Check Point. That’s all well and good. But what does all of this really mean for investors?

OK, then, how about in execution?
When you get these sorts of raving reviews, one should expect the reverence to manifest itself in the quarterly reports. Here, too, Fortinet is kicking tail. Recently, the company beat both top- and bottom-line estimates as revenue surged 25% year over year. This is while Check Point posted just 3% revenue growth.

Profitability was also strong, …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

It's "Gut-Check" Time for Check Point

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By Richard Saintvilus, The Motley Fool

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Check Point investors have become insecure ever since the company reported disappointing fourth-quarter earnings. Consequently, the stock has been in a lull ever since. Complicating matters is that new entrants like Palo Alto Networks and Sourcefire are generating considerable buzz.

While Check Point still has a sizable market lead in enterprise network security, investors are unsure of what to make of the company’s recent lack of momentum. Some are suggesting that Check Point‘s “tech card” should be revoked after the company posted just 3% revenue growth in the fourth quarter, marking the seventh consecutive quarter of sales declines. Now, with Sourcefire only percentage points from a new 52-week high, and Palo Alto posting strong revenue numbers, it’s become “gut-check” time for Check Point.

Should investors wait or abandon the stock?
This decision really depends on where you are in the position. Unfortunately, Check Point does not offer a dividend to help pacify the time, which makes being patient more difficult. But this, too, has its limits. And, when compared to Fortinet, which posted a 25% revenue increase in Q4, Check Point‘s numbers were even more disturbing. But there’s hope.

Working in Check Point‘s favor is its strong management team, which did an excellent job navigating the company through last year’s challenges, which included soft enterprise spending and a brutal fiscal European environment. But those were last year’s problems. Besides, these issues didn’t seem to affect Cisco or Fortinet, which have similar exposure.

Then, again, set aside the recent growth struggles, and glance at Check Point‘s fundamentals; you may not find a more attractive company. The top line is unappealing, yes. But the bottom line is a different story. Check Point is still growing profits at an annual rate of 9%. Again, this speaks to the quality of management that the company has – one that is able to do more with less. This means that, despite soft sales, and possible loss of share to the likes of Cisco and Fortinet, management is making each sale that it does get, count.

What’s more, it also demonstrates how highly regarded Check Point is in enterprise security. The fact that the company is able to still target higher margin businesses means that Check Point is not succumbing to pricing pressure despite the aggressiveness of Palo Alto and Sourcefire. That said, management must still get revenue going in the right direction again. Otherwise, investors will begin to question if the premium they are paying today is deserved — at least when compared to Cisco. 

Time to get more aggressive
The enterprise security space is pretty significant. Plus, with continued adoption of mobile devices within BYOD, or bring-your-own-device, this will only increase the demand for more security. However, though, it doesn’t appear as if Check Point cares much about growth. It sounds like a ridiculous claim, but the evidence has not been there. And the company has underinvested in some key areas.

For instance, aside from buying Dynasec in 2011, Check Point has not been aggressively expanding its enterprise footprint — at least not to the extent …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Should Investors Be More Bearish on Juniper?

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By Richard Saintvilus, The Motley Fool

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It wasn’t that long ago that the prevailing debate in the networking sector was, “Which is better: Juniper Networks  or Cisco ?” I continue to do my best to squash these arguments. But the optimism in Juniper remains overdone.

There’s no way this stock should command a price-to-earnings ratio of 57, especially when Cisco wins in every meaningful category such as return on assets, return on equity, operating cash flow, margins — you name it. This story is far different today than what was told at the height of the dot-com bubble. And management is looking for options.

Is the writing on the wall?
There are now reports that Juniper attempted to sell off some of its assets to rivals last year. But it was unable to find a buyer. In a recent Reuters story, it was revealed that Juniper reached out to several competitors (presumably Cisco) to gauge interest in assets such as NetScreen Technologies, a security business that Juniper acquired in 2004.

However, there were no takers. It was determined that the company’s assets lacked innovation and growth — pretty much the same thing that I’ve been saying for years. But management denied the report. Kevin Johnson, Juniper’s CEO was quoted as saying, “If you look at the acquisitions we have done, we’re a buyer not a seller.”

It’s true, the company picked off software start-up Contrail Systems last year and then acquired enterprise security software company Mykonos. But that’s just two acquisitions over the past three years. Meanwhile, Cisco had 11 acquisitions last year alone. Essentially, Cisco is ramping up to regain any market share that it has lost over the years to Juniper and others.

I think Juniper’s management has begun to realize what’s going on. And it’s not by coincidence that NetScreen was the subject of the sale. Juniper’s enterprise security prospects have been diminishing for some time and losing ground to (among others) Check Point Software and F5 Networks. And the company has found no solution to stop the bleeding, which culminated in a grim 2% revenue growth in the most recent quarter — not exactly “tech company” performance.

Bad blood and elbow room
Unfortunately, the security space has begun to get more crowded. The arrival of ground-breaking technologies from Palo Alto Networks have heightened the urgency while also raising some tension. Granted, they are not all competing for the same market. And it may be a stretch to say that Juniper is losing ground to an upstart like Palo Alto, it doesn’t erase the threat of margin pressure that Juniper will likely face in the long term from Check Point and F5.

Conversely, Cisco, which has a much stronger enterprise presence, has been buying its way into higher-margin businesses such as Intucell, while leveraging its existing security offerings with Cognitive. For Juniper, however, while it’s great that the company is now “reviewing” its enterprise focus, I stand by the overall point that the company does not have the technology to rebuild …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Palo Alto's Steadily Gaining Respect

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By Richard Saintvilus, The Motley Fool

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Shares of Palo Alto Networks were trading down 4% on Friday following the company’s second-quarter earnings report. Although the network security company beat consensus estimates, the market didn’t like the company’s forecast for this current quarter, even though it was in line with estimates. But the Street had already received guidance from rivals like Cisco and Check Point Software , which weren’t any better. Fairly or unfairly, this is the plight of momentum growth stories like Palo Alto — where it’s always about the next quarter.

Another dominant performance
Downbeat guidance or not, the company delivered the goods. And speaking of momentum, there’s not much more a company can do than 70% year-over-year revenue growth. Palo Alto posted sales of $96.5 million, which topped Street estimates of $93.3 million. Product revenue soared 60% year over year and advance 12% sequentially. Service revenue, which accounts for 36% of total revenue, was the story — jumping 91% year over year and 13.5% sequentially.

What’s more, the company added an additional 1,000 new customers in the quarter, which brings its total to 11,000.This tells me that Palo Alto is significantly outperforming Cisco in some very important areas, particularly in security services, where Cisco posted just 1% revenue growth. However, Palo Alto is not making this easy. For that matter, it is outperforming market leader Check Point, which just grew just 3%. While Check Point cited (among other things) weak European demand for its struggles, Palo Alto posted 25% growth in international markets.

The company also posted year-over-year and sequential growth in all geographic markets. Equally important, even though the Palo Alto is not as big as Cisco or Check Point, a 92% jump in deferred revenue means that Palo Alto has been aggressive. Likewise, that billings surged 81% year over year and 12% sequentially means that Palo Alto is not feeling the sort of macro or pricing pressure that young companies are normally subjected to.

Still building infrastructure
In that regard, there were strong improvements in profitability, with yet some opportunities. Non-GAAP gross margin of 72.2% arrived in line with prior guidance. But gross margin was a bit soft — shedding 70 basis points year over year and 40 basis points sequentially. But I’m willing to excuse this. The company is fighting for position and market share, evidenced by the 14% increase in research and development expenses.

Likewise, Palo Alto invested in several product development and sales improvement initiatives; sales and marketing expenses grew by $3.6 million. These increases took product margin down a bit to 73.4%, which is down 10 basis points year over year and 80 basis points sequentially. But management warned the Street in the first quarter of product gross margin fluctuations due to new product releases. In this case it was the launch of the PA-3000 series security hardware, which bought in higher cost of goods sold.

Moving forward
Palo Alto showed tremendous growth. Although profitability is not where …read more
Source: FULL ARTICLE at DailyFinance