What's in Store for Proofpoint (PFPT) this Earnings Season?

Proofpoint Inc.PFPT is set to report fourth-quarter 2016 results on Jan 26. Last quarter, the company's loss was narrower than expected. Notably, Proofpoint has outperformed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 21%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Proofpoint is a leading security-as-a-service provider that focuses on cloud-based solutions for threat protection, compliance, archiving & governance, and secure communications.

According to a Markets and Markets report, worldwide cyber security spending will reach $101 billion in 2018 and $170 billion by 2020. Gartner had earlier revealed that IT security spending peaked to $75 billion in 2015. The favourable trend in the space is likely to aid Proofpoint's fourth-quarter results.

Although Proofpoint's top-line growth has been remarkable as a result of sustained focus on launching new products, acquisitions and partnerships, the company has failed to deliver on the bottom line.

It should be noted that over the past few years, Proofpoint has invested heavily to enhance its sales and marketing capabilities, particularly by expanding its sales force to survive in the highly competitive cyber security market. Notably, the company's expenses have increased over three-fold to $156.2 million in 2015 from $42.7 million in 2011. This has negatively impacted Proofpoint's bottom-line results.

Since it continues to invest in sales and marketing, we anticipate this to remain a drag on the company's fourth quarter bottom line.

Earnings Whispers

Our proven model does not conclusively show that Proofpoint will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 27 cents per share. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Proofpoint carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Proofpoint Inc. Price and EPS Surprise

Proofpoint Inc. Price and EPS Surprise | Proofpoint Inc. Quote

Stocks to Consider

Here are some of the companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Seagate Technology Plc STX , with an Earnings ESP of +1.87% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Corning Inc. GLW , with an Earnings ESP of +2.27% and a Zacks Rank #2.

Texas Instrument TXN , with an Earnings ESP of +1.24% and a Zacks Rank #3.

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Seagate Technology PLC (STX): Free Stock Analysis Report

Corning Inc. (GLW): Free Stock Analysis Report

Texas Instruments Inc. (TXN): Free Stock Analysis Report

Proofpoint Inc. (PFPT): Free Stock Analysis Report

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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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