Earnings Season Shows Security Software Demand Remains Strong

Security software spending is on the rise following a series of high-profile hacks against a number of businesses this year. Now, security software companies are starting to report earnings, and it’s clear that business will be great for some time to come.

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  • That’s because these companies tend to operate on a recurring revenue basis, so whether a customer is now or upgrading their security software, they’ll also be making regular payments to ensure upgrades and monitoring.

    One company seeing big results is Palo Alto Networks (PANW). The company just reported earnings after the bell on Monday. Revenue jumped 28 percent, and earnings hit $1.60 per share against expectations of $1.43 on a non-GAAP basis.

    These results led to a 20 percent jump in shares to a new all-time high. Shares are now up about 58 percent in the past year, beating the S&P 500 by about 28 points.

    Action to take: This growth is likely to continue. While the company didn’t earn a profit on a GAAP basis, rising revenue and earnings, especially recurring revenue-based earnings, are likely to continue over time. Investors who buy shares will likely see a continued rally that beats the overall S&P 500.

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  • For traders, the jump to all-time highs suggests a continuation of the uptrend already in place. The January $460 calls, last going for about $27, are likely to see further upside, with a reasonable chance of moving in-the-money before expiration.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may make a trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.