Barracuda Eyes Bigger Bite Of Cybersecurity Market

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W hen a large corporation is hit with a major cybersecurity breach, the news travels fast, far and wide. When a small or midsize business suffers the same fate, the news may not make it past the front door.

Yet these businesses are just as susceptible to cyberattack as their larger peers, and just as in need of security software and solutions to protect them from cybercriminals.

This is whereBarracuda Networks ( CUDA ) comes in.

It provides content security, application/network security and storage appliances to small and midsize enterprises (SMEs).

The company offers cloud-connected technologies that help its customers address security threats, enhance network performances and protect and store data.

On the storage side, Barracuda offers products designed to simplify network backup processes, compress stored data and let customers securely access, share and sync files from any device.

Safety For Small Business

Barracuda's security solutions include firewalls to protect email and Web servers from data breaches, viruses, malware and other threats.

The company also offers products that give remote users secure access to internal network resources from any Web browser.

Security products are in heavy demand these days as more companies look to avoid the kinds of high-profile security breaches that have hit the likes ofSony ( SNE ),Target ( TGT ),JPMorgan Chase ( JPM ) andHome Depot ( HD ) .

That need for more and better security extends to small and midsize businesses that used to ignore the threat of cyberattack.

"A lot of the traditional SMEs have underinvested in security even though we're seeing more breaches in the SME space as well as in large enterprise space," said Erik Suppiger, an analyst at JMP Securities.

Many of these SMEs had "kind of gone under the assumption they are under the radar, but it's become more apparent that even smaller enterprises are at considerable risk," he told IBD. "The cybersecurity threat landscape has evolved dramatically over the last few years and created threats for SMEs as well larger enterprises."

JPMorgan analyst Sterling Auty estimates the application/network security market in which Barracuda competes is worth $8.6 billion.

He expects market growth to be in the mid- to-high single digits.

Refining The Firewall

Barracuda should outperform that overall market because of its "exposure to higher-growth sub-segments in the market like next-generation firewall and Web application firewall, " Auty noted in a research report.

The company has spent the last year developing and refining a next-generation firewall technology designed to provide customers with better security and more efficiency than other firewall solutions.

"They took that technology and redesigned a much more manageable and cost-efficient solution for SMEs," Suppiger said.

Barracuda officials declined to comment for this article, citing a quiet period leading up to the company's fiscal 2015 fourth-quarter earnings report, which is scheduled for April 27.

On its website, the company says that its Barracuda NG Firewall product is designed to "meet enterprise requirements of massive scalability, efficient configuration and lifecycle management across dispersed networks."

The success of Barracuda's next-generation firewall solutions played a big role in the company's 20% year-over-year gain in billings during its fiscal third quarter, Auty notes.

In addition, he said, the company's expected Q4 billings growth of 16%-plus will be "driven by the core business in addition to the faster-growing, next-generation firewall solutions and virtual solutions."

Analysts polled by Thomson Reuters expect Barracuda to report earnings of 6 cents a share for its fiscal fourth quarter, which ended in February. That would match the EPS a year earlier. Revenue is seen rising 19% to $71.7 million.

During its fiscal Q3, the company boosted EPS to 6 cents from 1 cent a year earlier, topping consensus analyst views.

Revenue climbed 19% to $70.4 million, with subscription revenue accounting for 71% and appliance revenue accounting for 29%. Its subscriber count also grew by 19%, to nearly 235,000.

Most of Barracuda's revenue -- 73% during its fiscal third quarter -- came from the Americas. EMEA (Europe, the Middle East and Africa) contributed 20%; Asia/Pacific pitched in 7%.

"We believe CUDA's product suite should allow the company to maintain revenue growth of high teens for the foreseeable future," analyst Mark Kelleher of D.A. Davidson noted in a research report.

Storage Surge

He cites a worldwide rise in demand for storage products. In this market, Barracuda should benefit from "a major refresh of its storage portfolio" that took place in September.

"Barracuda improved its product offerings to allow customers simpler access and retention of their data," Kelleher said.

That simplicity is especially important for SMEs that don't have a lot of in-house technological prowess. In addition, analysts say, Barracuda's wide range of products gives it a competitive edge over many of its rivals, which includeEMC (EMC),IBM (IBM),Symantec (SYMC) andCheck Point Software (CHKP).

"Barracuda has a breadth of product that is very attractive to SMEs who want to buy from a single vendor," Suppiger said. "Also, the support Barracuda has is really exceptional for SMEs, and they have price points that are pretty attractive."

Barracuda has an IBD Composite Rating of 94. Its stock price touched a record high of 45.81 on April 13 and currently trades near 43. The company belongs to IBD's Computer Software-Security group, which ranks No. 7 in performance out of 197 industries tracked.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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