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

Barracuda Networks Inc (NYSE: 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. (NASDAQ: AMZN), Alphabet Inc (NASDAQ: GOOGL), and Microsoft Corporation (NASDAQ: 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.