D.A. Davidson Has Some Concerns About Cybersecurity Spending

Following conversations with a number of cybersecurity industry participants, including customers, partners and company executives, D.A. Davidson’s Jack Andrews said in a report there were growing concerns regarding security software spending. He reduced the estimates and price targets for several companies.

Andrews mentioned that the state of security software spending increasingly falls into one or more of the following three categories:

1. Too Soon: Although organizations are facing increasingly vulnerabilities and many security professionals wish to invest into additional products and subscriptions, the new purchases are not being justified from a financial perspective. This is because most companies bought security software merely 12–18 months ago, and “internal organizational rules require a greater amount of depreciation on existing products before additional purchases of any kind can be approved,” Andrews explained.
2. No More Budget Increases: There are several instances of “binge buying” in security, with companies feeling under pressure due to the sensitivity of their data. In many companies, security spending has reached “the upper limit of what organizations are willing to bear,” the analyst stated.
3. Cannot Add New Vendor: Achieving the appropriate ROI on security products no longer seems feasible, “given the caliber of management and personnel needed to truly draw value out.” Thus, organizations are restricting buying a new product from a new vendor.

Price Target And Estimate Revisions

• Cyberark Software Ltd (NASDAQ: CYBR): Rated Neutral, price target reduced from $55 to $54. The EPS estimates for the current and the next fiscal year have been reduced from $0.35 to $0.34 and from $1.42 to $1.40, respectively.
• FireEye Inc (NASDAQ: FEYE): Rated Buy, PT reduced from $22 to $18. The EPS estimate for the next fiscal year has been reduced from ($0.39) to ($0.46).
• Imperva Inc (NASDAQ: IMPV): Rated Buy, PT reduced from $57 to $53. The EPS estimates for the current and the next fiscal year have been reduced from $0.04 to $0.03 and from $0.15 to $0.12, respectively.
• Palo Alto Networks Inc (NYSE: PANW): Rated Buy, PT reduced from $82 to $79. The EPS estimate for the next fiscal year has been reduced from $2.74 to $2.72.
• Proofpoint Inc (NASDAQ: PFPT): Rated Neutral, PT reduced from $186 to $165. The EPS estimates for the current and the next fiscal year have been reduced from $0.15 to $0.14 and from $0.55 to $0.52, respectively.
• Qualys Inc (NASDAQ: QLYS): Rated Buy, PT reduced from $47 to $43. The EPS estimate for the next fiscal year has been reduced from $0.95 to $0.92.