Keep Your Eye On The Big Picture As Barracuda Networks Prepares To Report Its Q2 Performance

Barracuda Networks Inc CUDA is set to report second quarter numbers after the market close on October 11, and D.A. Davidson sees earnings a penny above consensus and guidance.

D.A. Davidson expects earnings of $0.14, above consensus' $0.13 estimate and company guidance of $0.12-$0.13. The brokerage projects revenue of $85 million versus consensus' $85.3 million and guidance of $84-$86 million.

"One key number in the Q2 report will be Sales and Marketing as a percentage of revenue. As we noted above, last quarter the company was able to constrain marketing expenses, dropping S&M as a percent of revenue from 42% in Q1 FY 2016 to 33% in Q1 2017," analyst Mark Kelleher wrote in a note.

Kelleher anticipates a rebound to 37.6 percent in the second quarter as he expects a return to more normal marketing expense levels.

Another key metric will be gross billings, which provides insight into new sales generated in a quarter. The company guided $96-$99 million for gross billings, which at the midpoint would represent a 1 percent year-over-year decline.

Barracuda Networks faces stiff competition from public cloud companies such as Amazon.com, Inc. AMZN, Alphabet Inc GOOGL, and Microsoft Corporation MSFT and the competitive headwind is unlikely to abate near-term. The company is also affected by an industry transition from on-premise equipment purchases to cloud- and virtual-based form factors.

"CUDA's cloud-based solutions are ramping quickly, but the transition will likely present a headwind to overall growth for some time," Kelleher continued.

"Given our $19.50 12-month price target (which applies a 22x P/E to fiscal 2018 EPS), we are reiterating our UNDERPERFORM rating," Kelleher added.