
Avoid Barracuda Networks Despite Wednesday's Price Plunge
NEW YORK (TheStreet) -- Investors were feelings anxious ahead of Barracuda Networks' (CUDA) second-quarter fiscal 2016 earnings results Tuesday. And, despite its strong quarterly and full-year revenue and earnings projections, avoiding the stock ahead of Tuesday's results -- as we suggested -- was the smart move. And after the cloud-based security and storage services provider announced its results, investors who listened saved some money.
Barracuda stock got hammered Wednesday, falling some 35% to around $15 a share after the company on Tuesday reported a fiscal second-quarter loss of $2.2 million, reversing its profit for the same period a year earlier. Barracuda, which competes in a crowded field with the likes of Palo Alto Networks (PANW) - Get Report and Fortinet (FTNT) - Get Report , said it had a loss of 4 cents a share. On an adjusted basis, it earned 10 cents a share, which was in line with the average analyst's projections.
In terms of revenue, the Silicon Valley, Calif.-based firm posted sales of $78.4 million for the quarter that ended in August. Analysts -- on average -- were looking for sales of $78.7 million. This was the basis for our bearish thesis ahead of Tuesday's results.
Even after Wednesday's selloff, which took Barracuda to a new 52-week low, the stock is still too expensive. It's projected to earn 39 cents a share for the fiscal year ending in February 2016, which puts forward P/E at 46 -- almost three times higher than the S&P 500 (SPX) index trades for on a forward basis.
And here's the thing: The company, which missed its own first-quarter billings target by about 50%, practically telegraphed the revenue disappointment for the just-ended quarter. A billings shortfall in the software industry is nothing to ignore, since it denotes the strength of future revenue, or commitments to buy.
This time around, second-quarter billings, which climbed 11% to $98. 4 million, weren't much better. The company blamed negative currency impacts for the weak results. As for the third quarter, Barracuda reduced its billing guidance and now says it expects billings to rise in the range of 10% to 13%, owing to weaker-than-expected sales in regions including Asia. Prior expectations were around 16%.
Accordingly, with the reduced billings metric implying slowing future growth in quarters ahead, it's clear that there are weaknesses in the Barracuda's business it needs to address. So while these shares might look more tempting today after the selloff, investors would be better served staying away until Barracuda can get revenue going in the right direction and realize stronger sustainable/recurring business.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.








