Despite favorable fundamentals, shares of cyber-security firms have been taking it on the chin the last few trading sessions.
In some respects, they're the latest group of companies to get hit following the strong selloff in biotech, technology and social media companies. Shares of FireEye (FEYE), Palo Alto Networks (PANW) and KEYW Holdings (KEYW) and others have all been hit, despite the upward move in Wall Street price targets in 2014. While it looks like some of those social media and technology companies, like Facebook (FB), Medidata Solutions (MDSO), Amazon (AMZN) and others, have started to put bottoms in and, in some cases, have begun to recover, new headlines could weigh further on cyber-security companies.
Earlier this week, Imperva (IMPV) pre-announced its first-quarter results, which included a shortfall in revenue. Imperva now expects to report total quarterly revenue in the range of $31 to $31.5 million compared with the company's prior guidance of $36 to $37 million.
What was responsible for the better than 14% miss on the top line? Here's what Imperva said in its press release: "...first quarter results were primarily impacted by extended sales cycles on deals over $100,000, which led to delays in receiving anticipated orders from customers, particularly in the U.S., which resulted in lower than expected revenue for products."
Extended sales cycles are not new, but when it happens, it tends to do so either across the board or it can be a sign of something else. That something else could be erosion of market share, but we won't know that until we hear from FireEye, Palo Alto Networks, and KEYW Holdings, as well as some of the big dogs in tech that play in cyber security, Intel (INTC) with its newly renamed Intel Security business and Cisco Systems (CSCO), which acquired Sourcefire last year.
What makes this a little murky is a recent report from NSS Labs, the Consumer Reports and Good Housekeeping equivalent when it comes to evaluating cyber security products. Its "Breach Detection System Comparative Analysis" report ranks products from FireEye, Fortinet (FTNT), Trend Micro (TMICY), and Sourcefire/Cisco on three criteria: security, performance and total cost of ownership. Based on the value map, the company with one of the highest overall marks (best performance, value and lowest cost of ownership) was Sourcefire/Cisco. Other solid performers included Fortinet and Trend Micro. By comparison, FireEye received a low score on performance and value and an above-average rating for total cost of ownership. That combination led to a "Caution" rating from NSS Labs compared to the "Recommended" rating for Cisco.
When it comes to Cisco, different investors look at different things -- the new cloud initiative, the Internet of Everything, the legacy router business and more. Based on the NSS Labs report, investors need to pay more attention to what Cisco is doing in the cyber threat and security business, particularly as it migrates deeper into the network. That could be a differentiator for Cisco and its shares.
At the time of publication, Versace had no positions in the stocks mentioned.