Proofpoint Gaining Traction In Cyber Security Sector
Nov. 26, 2014 2:53 AM ET | About: Proofpoint, Inc. (PFPT)
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
SummaryGovernment agencies, businesses and individuals have done little to protect themselves from cyber attacks.We are experiencing a huge increase in rate and severity of cyber attacks.Proofpoint is well positioned to capitalize on the growing need and demand for cyber security.
Proofpoint (NASDAQ: PFPT) is a company that offers cyber security products. It was founded in 2002 by Eric Hahn, formerly CTO of Netscape. The company describes itself as "an innovative security-as-a-service vendor that delivers data protection solutions that help organizations protect their data from attack."
In recent months, cyber crime has been on the increase against businesses, government agencies as well as individuals. JP Morgan, Apple, Home Depot, Target, Craig's List, and Sony are among the companies that suffered a recent attack. U.S. government agencies that have experienced system shutdownscaused by hackers include the State Department, the U.S. Postal Service, National Oceanic and Atmospheric Administration and the White House. The problem is international, for example, the Toronto police website was recently shut down due to attack and the largest cyber attack in history has been hitting Hong Kong sites. Experian reports that there has been an 80% increase in phishing attacks directed at mobile devices globally over the past year, and that one in six people has fallen victim to a cyber-attack via a phishing e-mail or browsing hijack.
A recent survey by the Ponemon Institute showed the average cost of cyber crime for retail stores more than doubled in 2013 for U.S. retail stores to an annual average of $8.6 million per company in 2014. The U.S. government hasn't done much more than private industry to fortify itself against cyberwarfare and 60 percent of smartphone users and almost half of tablet owners say they have no malware protection, leaving them as sitting ducks for growing numbers of cyber criminals.
More overwhelmingly alarming information and examples about the current cyber threat are available. The Ponemon website is one good source and there is also information there about the increased demand for security and compliance solutions. The U.S. Banking, Financial Services, Retail & Payment Cybersecurity Market - 2015-2020 research report forecasts a robust hike in funding for cyber security spending.
Proofpoint is in the sweet spot to profit from the increased need for cyber security. Their recent quarterly report came in above analysts' expectations. Billings increased over 50% and renewal of expiring contracts was over 90%. The company remains well-positioned to maintain this momentum due "to the ongoing favorable market trends as enterprises replace their on-premise legacy security solutions with our integrated cloud-based solution to more fully protect their data and lower their total cost of ownership," per CEO Gary Steele at the 3Q earnings call.
PFPT has gained from the demise of Google's Postini service although it's difficult to measure how much new business has been and/or will be created from this event.
The company has identified and made progress toward further expansion abroad. Paul Auvil - Chief Executive Officer, Director said, "We are planning as part of our 2015 process to be investing in Europe in particular as we think it's a great long-term opportunity."
The recently announced acquisition of Nexgate, a cloud based provider of security for enterprise social media channels, offers the opportunity to offer bundled services combining the Nexgate platform with Proofpoint's existing capabilities to provide comprehensive solutions involving social media across the Internet.
PFPT's targeted attack protection solution sales grew by more than 100% year over year during the third quarter, demonstrating this product's ability to meet demand.
During the third quarter, total revenue increased 46% year over year driven by an increase in subscription revenue. This was the 45th consecutive quarter of sequential revenue growth and highlights the success of their business model.
Proofpoint's strong billings growth is indicative of the company's ability to capitalize on situations described above. Additionally, the U.S. government is expected to react to the recent increase in data breaches by expanding regulatory compliance and data governance regulations, creating more opportunity for PFPT to increase revenues.
What could go wrong for PFPT? There are 191 Cyber security companies operating in the market. Any one of them could conceivably come up with a product that could become dominant or offer savings to the customer. PFPT has established itself in its sector, has increased revenues and billings, has forecast that they will be cash flow positive, has plans to expand sales to the European market, and is expected to have more opportunities with the increased demand for cyber security products and increasing government regulatory oversight expected. |
