Shares of Proofpoint, a security-as-a-service provider, hit an intraday low of $62.47 on Thursday before closing the day at $69.78 – down more than 4 percent.
Investors and traders initially reacted to Muddy Waters, a short-selling research firm, presentation at the Sohn investment conference in London. The research firm accused Proofpoint's management as "misleading" investors regarding the overall size of the market and its organic growth.
Muddy Waters also suggested that sector-wide pricing pressures were mounting ahead of Microsoft, Google, and Amazon's entry to the market.
Wedbush: Proofpoint Remains A Best Idea
Steve Koenig of Wedbush commented in a note on Friday that Muddy Waters' assertions were "specious" and Proofpoint's management team "is one of the least plausible targets" for accusations.
Here is a roundup of Muddy Waters' accusations and Koenig's response:
- 1. Muddy Waters: Proofpoint's losses and expanding valuation.
- 2. Muddy Waters: E-mail security is not a true "cyber security."
- 3. Muddy Waters: Proofpoint is exaggerating the $2.9 billion advanced threats market size in 2018.
- 4. Muddy Waters: Proofpoint's pricing power is eroding.
- 5. Muddy Waters: Proofpoint is misleading investors regarding organic growth.
According to Koenig, any "rapidly growing" SaaS company that recognizes revenue ratably but reports its expenses up front will naturally show "profitability well below cash generation." The analyst also noted that the stock remains "well within" its 7–10x EV/revenue multiple range, which was observed over the past 12 months.
Koenig stated this argument "strikes us a red herring" and cyber-attacks initiated through email "constitute the large majority of cybersecurity breaches."
Koenig cited Gartner's estimates for the market size that have moved higher over the past few years. In addition, the analyst believes the company's bookings for its advanced threat product are growing over 100 percent year-over-year.
The analyst stated that discounts to large accounts is "standard industry practice." Moreover, the company has doubled its subscription value to around $20 per user – a move that may be impossible if it was indeed seeing pricing pressure.
Finally, Koenig argued that the claim is "without merit" and the company has been "very transparent" surrounding disclosures related to organic growth.
Koenig reiterated shares of Proofpoint with an Outperform rating and $82 price target, adding that the stock is included within the "Wedbush Best Idea" list.
Image Credit: Public Domain© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
date | ticker | name | Price Target | Upside/Downside | Recommendation | Firm |
---|
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.