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"I think the opportunity we have is much bigger than we've seen before. While I am satisfied with the progress we are making in some areas, our growth rate should be higher than we have seen. "
That's what Gil Shwed, CEO of the Israeli company Check Point Software Technologies, said during a conference call with investment badysts Friday after the release of the first quarter results. In the end, the market was also unhappy.
In the previous four months, the shares of the Israeli cybersecurity firm had increased 32 percent, reflecting signs of improved revenue growth in the second half of last year. But with the release of the first quarter figures, Check Point shares plunged 11% Friday and closed at $ 119.99, a daily loss of 7.4%.
Analysts were expecting Check Point to release adjusted earnings (non-GAAP) of $ 1.31 per share for a business turnover of $ 471 million. The company did even better with $ 1.32 and $ 472 million, respectively. But the improvement is at least moderate: BPA has only increased by 2 cents compared to a year ago, while revenues have only increased by 4%.
In fact, the top segment results were even weaker as they included several million dollars of revenue from Dome9, a company it acquired last October and which was not included in the year's figures. former.
Even worse, Check Point's Q2 forecast earnings per share of between $ 1.32 and $ 1.40 on sales of between $ 474 and $ 500 million. Halfway through these forecasts, it announces a pro forma profit of only $ 1.36 per share for a business turnover of $ 487 million. Turnover is the average estimate of Wall Street badysts for Check Point, but the earnings figure would be 2 cents below expectations.
Check Point is currently one of the most fashionable markets in the high tech sector. The very week that Check Point produced mixed results, the report of the special advocate Robert Mueller detailed the extent of Russia's interference in the 2016 US elections. Shwed himself even pointed out the mobile phone hacking of Benny Gantz, party leader Kahol Lavan, and the founder and CEO of Amazon, Jeff Bezos.
"Over the past few years, we have seen a three-fold increase in the number of vulnerabilities discovered in the technology infrastructure, operating systems, hardware, software, servers, critical infrastructure, and so on. , in the world. vulnerabilities, with 800 in mobile operating systems only, "Shwed told badysts.
But the fact is that Check Point is developing as a technology company but as a traditional business: the Strauss food group, an Israeli food manufacturer, has announced a growth roughly equivalent to that of Check Point.
One of the reasons for Check Point's weak growth is the transition from its old sales model of its cybersecurity software through unique license agreements to a subscription and service sales model. The result is that instead of receiving a one-time payment, revenue is recognized in its income statement over the term of the contract, which typically lasts between 18 months and three years.
But the transition alone is not enough to explain Check Point's problems because it started three years ago.
The problem seems to come from the launch of its Infinity Total Protection system, which brings together all of the company's cybersecurity offerings into a single package for mobile applications, the cloud and applications.
For Check Point, Infinity was expected to generate revenue by offering seasoned customers a complete package that would reduce the need for complementary but competing products.
The problem is that customer approval for such an important product comes at the top of the corporate ladder, whether it's the CEO or the board. Check Point salespeople were used to working one notch or two lower, with a vice president of information systems or equivalent. They knew the contact persons and the selling time was relatively short.
The sales team should have been better prepared for the transition. Vendors struggled to leave their comfort zone and Check Point lost market share to rivals such as Palo Alto Software and Fortinet.
The problem is particularly acute in the North American market, the largest in Check Point. In the first quarter, sales were down 0.1% from last year, while they were up 9.3% in Europe and 4.3% in Asia-Pacific. "Overall, by looking at our overall sales structure, we have seen significant improvements and improvements that still need to be made," said Shwed.
Society is preparing late. In January, he hired Frank Rauch, who had been responsible for VMware's Americas Channel for the past six years, as global sales manager for the channel.
It has also put in place a new revenue distribution program with its partners, which should not only increase sales, but also allow Check Point to enter new markets. The company has hired mbadive hires of new sellers.
At the same time, CFO Tal Payne said that the Infinity subscription model was taking time to make its way into the income statement. But he cited a figure that should encourage investors: the future revenues of subscriptions already sold reached $ 1.31 billion at March 31, an increase of 13% over a year ago.
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