Check Point Software, a market leading cybersecurity vendor based in Tel-Aviv, Israel, is a barometer for publicly held cyber companies. They’ve beaten Wall Street’s earnings-per-share (EPS) estimates in 10 straight quarters, according to The Street, which stated that Check Point shares have surged 95 percent and 85 percent over the past five years and three years, respectively. But Barracuda Networks is a different story.
Barracuda’s stock took a nosedive last week after reporting its Q2 2015 earnings. Barracuda’s stock dropped 35 percent after the company reported that it lost over $2 million in the second quarter.
What gives? After all, the cybersecurity market is trending up and is expected to become a $200 billion dollar plus market by 2020, according to Cybersecurity Ventures’ Q3 2015 Cybersecurity Market Report.
Setting aside Barracuda’s earnings figures and financial performance, let’s clear up one thing: Barracuda is not entirely a cybersecurity vendor. Cyber is hot and Barracuda spins up a message around it; but the reality is that Barracuda is a networking-turned-cybersecurity company that plays in storage and has a lineup of products that includes a phone system. There are not many cyber players that compete in the PBX phone space.
To be fair, Barracuda isn’t the only company that calls out cybersecurity as a focal point while playing in other spaces. Consider IBM and its security business. IBM Security is a $1 billion-plus division at IBM. That would make IBM Security the third-largest enterprise security company, according to Gartner. A good story; but in a broader context, security makes up about 2 percent of IBM Corp.’s total revenues, and it was closer to 1 percent as recently as a year ago prior to its continual revenue slide. It’s not clear if IBM Security can break out of the corporate shadow – which is not a pretty picture.
It is interesting to note that while Dell recently announced its purchase of EMC Corp. for an eye-popping $67 billion, it was reported that Dell is also spinning off its SecureWorks unit as a separate IPO, which may be valued as high as $2 billion. It seems Dell understands the value and market rewards of a pure-play cyber business.
What’s the takeaway here for Barracuda? Perhaps double-down on the predatory brand name and cyber business, and think about a pure-play move. Pure-play cybersecurity products and services firms are hot, and the market is crowding with more and more of them as VCs and corporate investors continue to pump billions in to startups and emerging players.
Networking goes hand in hand with security, and network security is Barracuda’s sweet spot. But storage and phone systems may drag down the cyber focus and stock. Perhaps Barracuda should think about selling off its non-cyber products.
Barracuda is swimming with the sharks like Check Point Software for now. But if it isn’t careful, the company may get eaten alive … which, in the tech industry, can mean being acquired when its stock is down.
Steve Morgan is founder and CEO at Cybersecurity Ventures and editor-in-chief of the Cybersecurity Market Report and the Cybersecurity 500 list of the world’s hottest and most innovative cybersecurity companies. Follow Steve on Twitter or connect with him on LinkedIn.