Infoblox Investors, There Are Better Data Plays Out There

• Infoblox Inc BLOX shares have lost 35 percent in the last 3 months after hitting a high of $27.32 on June 22.
• Deutsche Bank’s Vijay Bhagavath downgraded the rating on the company from Buy to Hold, while reducing the price target from $30 to $20.
• Increased sales opex on IP Address Automation platforms and DNS Security products is expected to restrict the company’s earnings power, Bhagavath said.

Analyst Vijay Bhagavath mentioned that the earlier positive stance on Infloblox was based on expectations of improving deal sizes, better-than-expected close rates in Cloud deals and growth potential of DNS Security.

Although Infoblox has witnessed improved deal sizes, the latest market checks revealed that the company’s IP Address Automation platforms and DNS Security products are a “missionary sale’ and in a “sales push” mode with sales opex likely to rise in FY16.

This increase in sales opex as a percentage of revenues is likely to restrict Infoblox’s earning power and offset the benefits derived from improving deal sizes and the near-term strength in the “–A” product refresh, the Deutsche Bank report mentioned.

Bhagavath also expects the company to face long-term competition from the acquisition of OpenDNS by Cisco Systems, Inc. CSCO. The company’s transition to IPAM and DNS Security as a Service could negatively impact the FY16/17 consensus top line growth view.

The EPS estimate for FY16 has been reduced from $0.42 to $0.33.