Despite Proofpoint's Q2 Beat, This Analyst Thinks Material Upside Unlikely In 2019

Proofpoint Inc PFPT reported strong second-quarter results and slightly raised 2019 guidance, while billings and revenue modestly exceeded estimates.

Despite the solid performance, the company may not be able to deliver material upside throughout 2019, which is critical for a re-rating of the shares, according to Mizuho Securities.

The Analyst

Mizuho’s Gregg Moskowitz maintained a Neutral rating on Proofpoint while raising the price target from $120 to $128.

The Thesis

Proofpoint’s billings grew 17% year on year to $232 million, beating the Street's estimate of $229 million. The company indicated to a favorable competitive environment and high renewal rates, above 90%, Moskowitz said.

The company delivered revenue growth of 25%, higher than the Street's projection of 23%, while higher-than-expected non-GAAP operating margins drove non-GAAP EPS to 41 cents, which is about 5 cents higher than the Street's estimate.

Management guided to third-quarter billings of $274 million-$276 million, representing 24% growth at the midpoint. This is slightly higher than the Street's $273 million estimate. The company’s third-quarter non-GAAP EPS guidance came at 37 cents to 40 cents, above the Street's expectation of 36 cents.

Proofpoint also raised its 2019 billings and revenue forecast from $1.062 billion-$1.066 billion to $1.064 billion-$1.068 billion and from $874-$878 million to $878.5-$880.5 million, respectively. The non-GAAP EPS guidance was also raised.

“It's worth noting that PFPT doesn't expect recently acquired Meta Networks to contribute meaningfully to revenue in CY19, and that it will pay a one-time tax payment of roughly $10M in 3Q” Moskowitz wrote in the note.

Price Action

Shares of Proofpoint were up 3.6% to $131.58 Friday morning.

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