Though the cyber security industry has lost its momentum in the past several months, partially due to the weakness in the broad technology sector, it is poised for exponential growth in the coming years in the face of increasing cybercrime and the need to protect against these threats. According to Gartner, global security spending will increase 4.7% year over year to $75.4 billion in 2015 with some analysts projecting the global market to grow from $77 billion in 2015 to $170 billion by 2020.
The Q4 earnings reports of several industry players reflect this trend as most of them have beaten our earnings and revenue estimates with an encouraging outlook. Yet, they failed to drive the space and its ETFs higher that might suggest attractive entry point at the current level (read: 16 Bold ETF Predictions for 2016).
Let's dig into the earnings results of some of the cyber security firms that have the largest allocation to the ETFs in this industry:
Cyber Security Earnings in Focus
CyberArk Software (CYBR – Snapshot Report) reported earnings per share of 30 cents and revenues of $51.5 million, outpacing the Zacks Consensus Estimate of 13 cents and $44 million, respectively. The company projects earnings per share in the range of 15–16 cents on revenues of $42.5–$43.5 million, up 29-32% year over year, for the ongoing first quarter. The lower-end of both the guidance was well above the Zacks Consensus Estimate of 12 cents for earnings and $42 billion for revenue.
For 2016, revenues are expected to grow 27%–29% to $205–$207 million and earnings per share are projected in a band of 83–86 cents. The lower-end of both the full year guidance was also well above the Zacks Consensus Estimate of $203 million for revenue and 67 cents for earnings. However, analysts were expecting earnings per share of 17 cents and 91 cents for the ongoing quarter and fiscal year, respectively, which sent shares of CYBR tumbling following the earnings announcement on February 11 after the closing bell. The stock lost 10.8% on February 12.
FireEye (FEYE – Snapshot Report) beat our earnings estimate but missed on revenues. Net loss per share came in at 73 cents, narrower than the Zacks Consensus Estimate of 76 cents loss but revenues of $185 million fell shy of our estimate of $187 million. FireEye expects revenues of $167–$177 million for the first quarter and $815–$845 million for the full year. The midpoint of the range was in line with the Zacks Consensus Estimate for the quarter and above our estimate of $824 million for the year at the time of earnings release.
Net loss per share is projected in a range of 49-53 cents for the first quarter and $1.25-$1.32 for the full year. The midpoint of both projections was better than the Zacks Consensus Estimate of a loss of 81 cents and $3.00, respectively. Shares of FEYE fell 3.3% in the normal trading session following its earnings announcement on February 11 after the closing bell.
Check Point Software Technologies (CHKP – Analyst Report) topped our estimates on both the top and the bottom lines by $2 million and 6 cents, respectively. It expects earnings per share of 99 cents to $1.05 on revenues of $395–$410 million for Q1. The midpoint was well above our estimate of 93 cents for earnings but below our estimate of $403 million for revenues at the time of the earnings release. For the fiscal year, revenues and earnings are expected in the range of $1.72–$1.79 billion and $4.45–$4.60, respectively. The midpoints of both are well ahead of the Zacks Consensus Estimate of $1.75 billion and $4.08, respectively. The stock has risen nearly 4.6% since its earnings announcement on January 28 before the opening bell (read: ETFs in Focus on Rumored Check Point Buyout of CyberArk).
Fortinet (FTNT – Analyst Report) missed our earnings estimates by 6 cents but outpaced the same on the revenue front by $1 million. Fortinet sees revenues in the range of $270–275 million and earnings per share of 8-9 cents for the ongoing third quarter; the midpoints of both were lower than our estimates of $277 million and 9 cents, respectively, at the time of the earnings release. For 2016, the company expects revenues to grow more than 24% to $1.25-$1.26 billion and earnings per share to come in a range of 67-69 cents. The upper end of both the projections was above our estimate of $1.24 billion and 23 cents, respectively. The stock has plunged nearly 8.5% following the Q4 earnings announcement on January 28 after the closing bell.
