RDWR's fall sure does seem overdone especially after reading this:
RADWARE Reports Strong 3Q Results.Maintain Buy (1S)rating.
07:57pm EST 3-Nov-99 Smith Barney International (JR./JONES 415-951-1720) RDWR
--SUMMARY:--RADWARE, Inc.--Server & Enterprise Hardware
* RADWARE generated $3.6 million in revenue, up 155% y/y and up 19%
sequentially vs. our $3.3 million estimate. The penny loss per share
matched our expectation.
* Gross margins remained strong at 84%, 100 basis points above our est.
* RDWR is now well funded to increase its sales, marketing and technical resources. This should lead to increased strategic partnerships,additional customers and new products in 4Q99 and 2000.
* After talking with users of RDWR and other load balancing systems, we believe RDWR has very solid product offerings and should remain a leader.
* We rate RADWARE a Buy (1S) and are raising our price target from $60 to $85. While the stock should experience volatility, we believe it is a significant long-term player in the Internet Traffic Management market.
--EARNINGS PER SHARE--------------------------------------------------------
FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year
Actual 12/98 EPS $N/A $N/A $N/A $N/A $(0.20)A
Previous 12/99 EPS $(0.02)A $0.00A $(0.01)E $(0.03)E $(0.03)E
Current 12/99 EPS $(0.02)A $0.00A $(0.01)A $(0.00)E $(0.03)E
Previous 12/00 EPS $(0.02)E $(0.03)E $0.00E $0.04E $(0.01)E
Current 12/00 EPS $(0.02)E $(0.03)E $0.00E $0.04E $(0.01)E
Previous 12/01 EPS $N/A $N/A $N/A $N/A $0.25E
Current 12/01 EPS $N/A $N/A $N/A $N/A $0.25E
Footnotes:
--FUNDAMENTALS--------------------------------------------------------------
Current Rank........:1S Prior:No Change Price (11/3/99).....:$80.00
P/E Ratio 12/99.....:N/Ax Target Price..:$85.00 Prior:60.00
P/E Ratio 12/00.....:N/Ax Proj.5yr EPS Grth...:0.0%
Return on Eqty 98...:N/A% Book Value/Shr(99)..:4.74
LT Debt-to-Capital(a)0% Dividend............:$N/A
Revenue (99)........:12883.00thous Yield...............:N/A%
Shares Outstanding..:16.5mil Convertible.........:No
Mkt. Capitalization.:1320.0mil Hedge Clause(s).....:#
Comments............:(a) Data as of the most recently reported quarter.
Comments............:
--OPINION-------------------------------------------------------------------
RADWARE reported on Wednesday, Nov. 3, after the market closed that it generated $3.6 million in revenue in its third quarter, up 155% year over year and up 19% sequentilly, vs. our $3.3 million estimate. The penny loss per share matched our expectation. Gross margins remained strong at 84%, 100 basis points above our estimate.
The company will be hosting a conference call on Thursday morning at 8:45 a.m. Eastern time.
RADWARE is now well funded to increase its sales, marketing and technical resources. This should lead to increased strategic partnerships, additional customers and new products in the fourth quarter of 1999 and 2000.
We spent the day at ISPCON last week, a conference with over 100
companies that participate in the Internet Service Provider market.
After talking with companies that use RADWARE and other load balancing systems, we came away feeling confident that RADWARE has very solid product offerings and should remain a leader in the Internet Traffic Management (ITM) market. Also the general feeling is that the ITM market is just at the very beginning stages of substantial growth.
RADWARE knows it needs to get in bed with service providers such as
Exodus, a market that F5 is doing well in. We believe the additional
resources generated from its IPO that RADWARE now has available should allow it to ramp up its partnering efforts in this market.
Additionally, we expect RADWARE to partner with at least one major
networking company to endorse if not bundle RADWARE products into an
offering.
The company continues to land new blue chip customers. Ericcson
(internal IT), WalMart, WebVan and Canon were added in the September
quarter. Repeat business was also very strong with Bell Atlantic and
Fannie Mae increasing their install base of RADWARE systems.
Early indications are that the December quarter is progressing nicely.
We are expecting revenue of $4.1 million, with upside potential. Our
2000 revenue estimate is $26 million, up 95% year over year.
LinkProof, which manages traffic among multiple ISPs and was announced in early October, is scheduled for beta shipment in the late November/early December timeframe.
From a geographical and product perspective RADWARE's third quarter
results were approximately:
North America 70%
Europe 15%
Asia/Pacific 15%
Web Server Director 70% (50% local, 20% global)
FireProof 20-25%
Cache Server Director 5-10%
RADWARE's shares have been on a tear since it went public on September 30 and closed that day at 27 . We believe that the shares will continue to be volitile as it rides the Internet roller coaster.
The leader in the ITM market is F5, which is trading at 50 times 2001
revenue estimates to market cap. We believe F5 and RADWARE are both
taking market share from Cisco and that one of the reasons that F5 has ramped up revenue faster is that it built its IPO war chest four months earlier than RADWARE. We believe that RADWARE can now become more aggressive since it now has increased resources from its IPO.
Due to RADWARE's stronger financial position and our increased
confidence that it will remain a leading player in the Internet Traffic Management market, we are increasing our target price from $60 to $85,just under 35 times our 2001 revenue estimate to market cap. Note that on a revenue adjusted basis with a stock price of $85 RADWARE would still be trading at a 31% discount to F5 and on par with the other players in this space.
MODEL
($ in millions) 1998 1999E 2000E 2001E
=============== ====== ======= ======= =======
Revenues $4.9 $12.9 $25.7 $40.5
Gross margins 81.6% 82.8% 73.8% 72.0%
Selling & Marketing 85.8% 62.9% 58.8% 42.0%
General 6.1% 13.5% 7.7% 7.4%
R&D 15.1% 12.2% 13.0% 13.0%
EPS $(0.20) $(0.03) $(0.01) $0.25
Shares 6.3M 10.4M 16.8M 17.4M
Note: Shares outstanding for the fourth quarter of 1999 is estimated to be 16.6 million.
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