Barracuda's Momentum Continues In Q2

Reviewing

Barracuda Networks Inc CUDA

's fiscal year

Baird said core momentum at the company continues. The firm noted that the company posted good results and guidance against elevated expectations.

As such, the firm maintains its Outperform rating on the shares of the company and its $29 price target.

At the time of writing, Barracuda shares were slumping 10.34 percent to $23.12.

Analyst Jayson Noland noted that revenues and non-GAAP earnings per share of $94.3 million and $0.17 were in line with the consensus estimates of $93.4 million and $0.17, respectively. Helped by increased demand, mainly for product subscriptions, gross billings of $108.5 million exceeded the consensus of $105.8 million, the analyst added.

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Among other metrics:

Core products (accounting for 65 percent of the total): Up 22 percent year over year, faster than the 20-percent growth in FQ1.
Core subscription ARR: Up 24 percent vs. 23 percent growth in FQ1.
Legacy products (accounting for 33 percent of the total): Fell 7 percent.
Billings, excluding non-core: Up in double-digits for the fourth straight quarter.
Gross margin: 76 percent, down 40 basis points sequentially and down 280 points year over year.
Margins: To improve 50 basis points sequentially in FQ3-Q4.
Renewal rates: 91 percent, down from 93 percent in FQ1.

The firm noted that the management blamed the margin contraction to investments in infrastructure to sustain growth in cloud, a mix-shift to edge devices and non-recurring charges related to refresh and warranty activity.

Baird clarified that the company's fiscal year third-quarter guidance was impacted by the recent CudaCam divestiture and one fewer selling day. Accordingly, the firm said the revenue and non-GAAP earnings per share guidance are indicated to meet or miss the consensus.

The firm expects the continued momentum in Core products and the gradual decline of Legacy, in tandem, should support a reacceleration of growth overall. Though the firm expects investors to focus on renewal rate trends, it sees the low 90s renewal rates as impressive for SMB.

"We view the stock as attractive at current levels given public cloud traction and valuation relative to peers," the firm concluded.

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