Varonis An Interesting Play On New Corporate IT Demands And Threats

Enterprises generate tremendous amounts of data and collecting, aggregating, interpreting, and securing it is a major set of challenges for IT departments. Varonis (NASDAQ:VRNS) is an interesting take on that reality, as well as the increasing realization that sometimes the greatest threats to a company's IT/data security come from within, as the company's platform of products is designed to collect, analyze, and help manage large amounts of user-generated unstructured data that exist within a corporate/enterprise IT environment.

Varonis shares are up about 50% over the past year, but still more than a third below their debut price, as the company has had its challenges living up to initial expectations regarding license growth and margin leverage.

Although Varonis's addressable market may well be quite large (multiple billions of dollars), operating leverage is a tricky question and competition from large established players like Symantec (NASDAQ:SYMC) and Dell, not to mention small upstarts, is unlikely to lessen from here. Taken in the context of growth software stories, Varonis isn't that expensive, though, and the tight bunching of sell-side expectations leads me to think that the shares could react strongly to surprises (good or bad).

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Varonis An Interesting Play On New Corporate IT Demands And Threats

Seeking Alpha: EMC Not Exactly Making Its Case

Several large tech players, including Microsoft (NASDAQ:MSFT), Cisco (NASDAQ:CSCO), and Hewlett-Packard (NYSE:HPQ), have gone through multi-year stretches where their shares underperformed due to persistent concerns about their long-term competitiveness and growth potential. To varying extents these companies have changed the tone around their businesses, but it doesn't automatically follow that EMC (NYSE:EMC) will be able to go that same route. While EMC has managed to do a credible job of keeping itself relevant within its core storage market, there are persistent concerns about whether that market is truly valuable anyway and whether EMC can reposition itself for future growth.

I'm increasingly on the "cautious yes" side of that question. EMC has historically done a good job of buying the pieces it needs to remain at the top of the market, as well as identifying assets like VMware (NYSE:VMW) and RSA that can grow the business. Expectations are not particularly demanding today, but then EMC's performance doesn't call for aggressive projections and there are increasing risks (in my view, at least) that the company will respond to the pressure its under with a larger acquisition.

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EMC Not Exactly Making Its Case

Investopedia: Symantec Fixing What Was Never Too Badly Broken

If you're going to repair and turn around a business, it certainly helps to start with one that wasn't too badly broken to start off. While Symantec (Nasdaq: SYMC) had certainly seen revenue growth and operating leverage stagnate, the company was still generating strong cash flows and maintained solid (if not leading) market share in multiple markets. With the company's new plan targeting commonsense expense reductions and a greater focus on customer value, these shares could be meaningfully undervalued today.

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http://www.investopedia.com/stock-analysis/062513/symantec-fixing-what-was-never-too-badly-broken-symc-intc-emc-ibm.aspx

Investopedia: Strategically-Challenged Websense Gets A Fair Deal

For a company that has been struggling with a multi-year identity crisis, Websense (Nasdaq:WBSN) got a pretty good deal Monday morning. While the company's bid from Vista Equity Partners won't be setting new records in the tech space for deal multiples, it's a good deal for a growth-challenged company with iffy margins and a very uncertain long-term strategic place.

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http://www.investopedia.com/stock-analysis/052113/strategicallychallenged-websense-gets-fair-deal-wbsn-symc-intc-fire.aspx

Seeking Alpha: Sourcefire's Risk-Reward Seems A Little Out Of Whack

Growing tech stocks rarely look cheap by conventional metrics, and Sourcefire (FIRE) has been an all-too-rare beat-and-raise grower even through this slowdown in enterprise IT spending. Relative to the opportunities and valuations at other security players like Cisco (CSCO), Check Point (CHKP), Fortinet (FTNT), and Palo Alto (PANW), though, it's not so clear that Sourcefire is a major bargain at today's prices. Although the potential addressable market would indeed likely support strong revenue growth and the company's technology could make it an acquisition target, I'm not sure Sourcefire should have this sort of relative valuation.

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Sourcefire's Risk-Reward Seems A Little Out Of Whack

Investopedia: Websense Looking For A Better Model

Finding one good idea is hard enough, let alone finding the series of good ideas that it takes to build and maintain a growing software franchise. While Websense (Nasdaq:WBSN) once had a good growth business in web filtering, that market is eroding and the company has yet to convince the Street that it can drive appealing growth from a broader expansion into web security.

Down with the Old, In with the New 
Websense's legacy web filtering business has not disappeared, but it is fading quickly. To compensate and give the company a shot at future growth, management has staked a lot on Triton - a suite that broadens the company's web security business and addresses additional markets like small/mid-sized businesses (SMB) and mobile device security.

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http://stocks.investopedia.com/stock-analysis/2012/Websense-Looking-For-A-Better-Model--WBSN-CHKP-INTC-CSCO-FTNT0312.aspx

Investopedia: Does Symantec Have A Next Act?

In technology, old dogs have to learn new tricks, or the market is all too willing to send them on that unfortunate one-way trip to the vet. That is a challenge, then, for Symantec (Nasdaq:SYMC). Once a hot tech growth stock, nobody cares about that history today. What investors do care about is evidence that the company has a real future in enterprise security and storage/server management. 


A Solid Close to the Fiscal Year
Symantec ended its fiscal year on a relatively solid note, at least on a relative basis. Revenue rose 9% in the fourth quarter, and surpassed the high end of the analyst estimate range (a surprisingly narrow range, by the way). The company's consumer business rose 6%, the storage/server business grew 8% and the security/compliance business rose 24%. The real laggard was the company's tiny (5% of revenue) service business, where revenue dropped 21%. (For more, see The Data Storage Gold Rush - Who's Left?)

Other encouraging details related to future business prospects - deferred revenue rose 19%, and bookings increased 23%. License revenue rose 11% this period, while maintenance/subscription revenue rose about 9%. Symantec had mixed performance on profitability. Gross margin (on a GAAP basis) improved by almost two points, while operating income fell 3% on much higher sales and marketing expenses. 




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http://stocks.investopedia.com/stock-analysis/2011/Does-Symantec-Have-A-Next-Act-SYMC-HPQ-ORCL-CA-EMC0516.aspx

Investopedia: Check Point Still On Point

Back in the day, Check Point Software (Nasdaq:CHKP) was in that rarefied sphere of must-have tech stocks. Unlike many of its peers from that era, though, this computer hardware/software developer has not only stayed in the game but continued to prosper as a leader in the network and gateway security field. However, Check Point's valuation has long since come back to more reasonable levels, and it may be time for investors to give this name a serious look.

A Solid Start to the Year 
Check Point did not blow the doors off the quarter with a financial report that will send its analysts into hyperventilation, but it was a solid quarter all the same. Revenue grew 15% for the period and surpassed the high end of the range, as product revenue rose almost 16% to $105 million. Deferred revenue performance was not quite as impressive; it rose 10% for the quarter to more than $460 million and slipped about 1% on a sequential basis.

Where Check Point really continues to impress is in its profitability. Gross margin (on a GAAP basis) climbed almost a full point to an eye-popping 85.9%. Operating income is likewise impressive; GAAP operating income rose 22% to over $141 million, while the operating margin was 50.2%. (For more, see The Bottom Line On Margins.)

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http://stocks.investopedia.com/stock-analysis/2011/Check-Point-Still-On-Point-CHKP-CA-SYMC-CSCO-FTNT-NOK-WBSN0415.aspx

The Data Storage Gold Rush - Who's Left?

The mad scramble going on today in the data storage market may not be the sort of gold rush that gives us classics like "The Treasure of the Sierra Madre," but it is a gold rush all the same. Shareholders have seen soaring valuations, companies have seen the competitive chess board morph in front of their eyes and outside observers have had plenty to talk about as bids and rumors roil the markets. 

With the recent announcement of a deal between Dell (Nasdaq:DELL) and Compellent (NYSE:CML), it is fair to wonder whether the land grab is close to running its course. There is no doubt that storage is going to be a key component of corporate IT as long as there is IT, but it looks like a combination of scarcity and a need to digest prior deals may eventually calm the market.

The Big Boys
There is no question that there are plenty of options when it comes to corporate-level data storage. EMC (NYSE:EMC) is still a major player in the field, along with competitors like NetApp (Nasdaq:NTAP), IBM (NYSE:IBM), Hewlett-Packard (NYSE:HPQ), Dell  and Hitachi (NYSE:HIT). Within this wide array of vendors is an equally wide array of approaches and technologies, ranging from EMC's efforts to meet almost any conceivable storage need to NetApp's much more focused approach.


The link below leads to the full piece:
http://stocks.investopedia.com/stock-analysis/2010/The-Data-Storage-Gold-Rush---Whos-Left-EMC-NTAP-CVLT-CA-IBM-SYMC-ORCL1215.aspx

No Damming Digital River

Nothing irks value investors like an expensive stock that stays expensive and more or less delivers the performance investors want. E-commerce specialist Digital River (Nasdaq: DRIV) is a good example. The stock has rarely been cheap, but the company continues to separate itself from would-be rivals and seems to have a way of bouncing back from setbacks. 

The Quarter That Was
Digital River announced that revenue fell 14% in the third quarter, due mostly to the loss of Symantec (Nasdaq:SYMC) as a customer. The company has done a great job of scrambling to replace that loss, though. Revenue excluding Symantec would have been up more than 20% over last year, due in part to the expansion of the company's relationship with other software companies like Microsoft (Nasdaq:MSFT) and Electronic Arts (Nasdaq:ERTS).

Profitability was a bit more problematic, however. The company made scant progress in trimming down expenses in sync with revenue, and Digital River saw total operating expenses fall only a bit more than $2 million. Consequently operating income fell precipitously, though the company's adjusted earnings were fine relative to Wall Street expectations.


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http://stocks.investopedia.com/stock-analysis/2010/No-Damming-Digital-River-DRIV-SYMC-MSFT-ERTS-IBM-ACN-GSIC1027.aspx

Intel and McAfee - How Much Does It Help Intel, Really?

Interesting to see the news this morning that Intel (Nasdaq: INTC) is taking out McAfee (NYSE: MFE) for $7.7 billion in cash, or $48 a share.

On first look, that is not a terribly bad premium for McAfee. Sure, it is a 60% premium, but probably only around a 20% premium to fair value. I do not happen to think that any company should make a habit of routinely buying other companies for *any* premium to fair value, but this is the real world and I gave up on that particular crusade years ago.

Most people probably know McAfee - it is the largest pure security software company (Symantec (Nasdaq: SYMC) has expanded to a point where it is not purely security software). McAfee is best known for protecting individual PCs and networks, but Intel is doing this deal for the possibilities in wireless security.

Intel is clearly focused on expanding into mobile/wireless devices like smartphones. Like Microsoft (Nasdaq: MSFT), Intel is finding it difficult to replicate its success and dominance in the traditional PC space into the wireless space. But as Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) have so ably demonstrated, the future looks more and more like the iPhone and Droid and less like the HP laptop that I am using right now.

For now, at least, chip companies like ARM Holdings (Nasdaq: ARMH) (which is actually a technology developer and licensor, not a chip company), Samsung, Qualcomm (Nasdaq: QCOM) and Infineon (Nasdaq: IFNNY) have major roles in smartphones and Intel mostly does not. Obviously that is not a tenable situation for Intel.

Will McAfee really give them a leg up? I do not doubt that integrating better security technology into hardware is a good idea, but I am not sure how this gives Intel an enduring leg up. Is "built in" security technology all that important or valuable? I am not an engineer, so maybe I am missing something, but the answer does not seem to be an obvious, resounding "yes".

If nothing else, this deal probably cools the rumor that Apple makes a bid for Infineon to block Intel from making a deal. Intel has enough cash to buy both, but the challenges of integrating the two companies would be pretty significant.

I was modestly positive on Intel before this deal, but I will have to do so more reading before I say definitively whether it stays on my watch/buy list. My sneaking suspicion is that this deal does not really add any incremental leverage to Intel and that it is a lost opportunity to make a bigger splash and position the company better for share gains in the smartphone market.

Follow up - In the original post, I forgot to mention Intel's prior acquisition of Wind River and how this McAfee deal sort of follows along the same lines. I definitely think there is a solid future for embedded systems, and security would seem to be a logical part of that. Maybe this deal has more to do with bulking up Wind River, then?