Summit Says Barracuda Networks Is A Buy Because Of Its 'Sustainable Moat'

In a report published Monday, Summit Research analyst Srini Nandury initiated coverage of Barracuda Networks Inc CUDA with a Buy rating and a price target of $50, saying that the company’s shares were trading at a “significant discount to our peer group average.”

Analyst Srini Nandury believes that Barracuda is executing well and it would be able to sustain its revenue growth trajectory, since the company had:

• A loyal user base, with more than 90 percent renewal rates
• A predictable revenue stream, with about 70 percent of revenue coming from a recurring revenue base
• Fast growing TAM

Barracuda has been recording high margin, with gross margins exceeding 80 percent. “Barracuda’s relentless focus on ease of use, proactive services, and low cost products (sub $10K), gives them an insurmountable advantage that large OEMs such as EMC/IBM/HP find hard to overcome,” the Summit Research report added.

Nandury believes that large enterprise vendors “do not find it worthwhile to chase the SMB opportunity given the focus it needs to develop products and service SMBs.” Barracuda continues to invest around 19 percent of revenue in R&D and aggressively brand its products, with around 41 percent of revenue going into sales and marketing investments. Nandury expects this to provide the company with “sustainable advantage in the near term.”