SecureWorks (SCWX), which was spun-off from privately-held Dell in April 2016, is trading lower (-5%) after reporting Q4 (Jan) earnings this morning. In case you're not familiar, SecureWorks is a developer of cybersecurity software which helps customers fortify their cyber defenses to prevent security breaches, detect malicious activity in real time, prioritize and respond rapidly to security breaches and predict emerging threats. The company also provides security and risk consulting, wherein it advises clients on a broad range of security and risk-related matters.
At the core of its offering is its Counter Threat Platform, a proprietary technology platform which collects, correlates and analyzes billions of daily events and data points, and generates security intelligence on threat actor groups and global threat indicators. It provides global visibility into the threat landscape and it provides a powerful perspective on its clients' network environments. Each day it aggregates as many as 160 billion events and analyzes them with sophisticated algorithms to discover malicious activity. Its services include intrusion prevention systems, Internet firewalls, and e-mail filtering and encryption.
Turning to the Q4 (Jan) results, SCWX reported a non-GAAP loss per share of $(0.02), which was quite a bit better than the $(0.13) loss reported last year and it was better than prior guidance of $(0.07)-(0.05). Revenue rose 25.7% year/year to $119.2 mln, which also was better than prior guidance of $116-117 mln.
In terms of guidance, SCWX expects a Q1 (Apr) non-GAAP loss of $(0.06)-(0.05) and revenue of $110-111 mln. The EPS was in-line but this revenue guidance is below market expectations. For all of FY18, SCWX expects to report a loss of $(0.22)-(0.18) with revenue coming in at $458-464 mln. Both FY18 guidance metrics are below market expectations.
SecureWorks has had a bit of a tough time since its IPO almost a year ago. The deal priced poorly at $14, below the expected range of $15.50-17.50 and the deal size was cut to 8 mln shares from 9 mln shares. After trading briefly in the $16 area in June 2016, the stock has been steadily declining since then.
On the positive side, cybersecurity is a major theme that is getting an increasing amount of funding and attention. Every time some data breach hits the newswires, that's a major negative for that company and it reminds others that they need to protect themselves.
Modern IT infrastructures are growing in complexity and often include a combination of on-premise, cloud and hybrid environments. In addition, the adoption of mobile computing allows access to critical business information from various devices and locations. This rapidly evolving IT environment is increasingly vulnerable to frequent and sophisticated cyber attacks. It is getting increasingly challenging for businesses to protect their business assets from cyber threats.
The problem for the cybersecurity sector is that it's a highly competitive space. A lot of companies are competing for those cybersecurity dollars. And some have decided to low ball on price in order to get market share. This hurts everyone's margins. There will likely be a shakeout in this space at some point or perhaps some consolidation. However, it remains quite competitive right now. For SCWX specifically, the FY18 guidance seems to be the main reason the stock is lower today.