Barracuda Delivers Solid Q2 On The Strength Of Core Business

Barracuda Networks Inc CUDA seems to be getting back on track with Q2 results reflecting stable billings growth, above 20 percent growth in annualized recurring revenue and margin expansion, Morgan Stanley’s Melissa Gorham said in a report. maintained an Equal-weight rating on the company, while raising the price target from $19 to $23.

Barracuda's Q2 results reflected strength in the core business and the company’s transition away from non-strategic businesses toward more subscription / cloud-based security and storage products, analyst Gorham noted.

Core Business Strength

The company posted gross billings of $100.3 million, ahead of the MS estimate of $97.8 million and consensus forecast of $95.8 million. Growth was driven by Barracuda's core business segments, which recorded more than 20 percent y/y growth in billings, while the legacy on premise products were down 15 percent y/y, in-line with expectations.

“Annualized recurring revenue (ARR) continued to show an encouraging picture as more business moves to shorter duration subscriptions, with subscription ARR +23% YoY, in line with last Q,” Gorham wrote.

Management indicated strength in the cloud based e-mail security, next gen firewall and web application firewall businesses as well as continued improvement in storage, while announcing the termination of some non-core products during FQ2.

Guidance Raised

Management raised its revenue guidance for FY17, with the midpoint reflecting 8 percent y/y growth versus the prior 7 percent.

Although management guided to a slight sequential decline in FQ3 billings, reflecting discontinued products, the non-GAAP operating income guidance for FY17 was raised by $8.5 million, implying margins of 14.8-15.5 percent.

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