We came across a bullish thesis on Allot Ltd. (ALLT) on Substack by Shareholdersunite Essentials. In this article, we will summarize the bulls’ thesis on ALLT. Allot Ltd. (ALLT)'s share was trading at $7.51 as of Jan 16th.
A close-up of a computer monitor showing a dynamic network of cyber security components.
Allot (ALLT) is an Israeli company specializing in network intelligence and security solutions, targeting both carriers and enterprises worldwide. The company operates two primary business segments: Allot Smart, focusing on network optimization, and Allot Secure, providing network security on a subscription basis. Recently, Allot has taken steps to merge these segments, creating cross-selling opportunities and aiming for a unified "security-first" business model. This transition is well-timed, as the bankruptcy of its main competitor, Sandvine, opens up a $200 million annual revenue opportunity, which Allot is poised to capitalize on alongside other growth avenues such as the expansion of 5G and Fixed-Wired Access (FWA).
Allot Secure, offered as a Security-as-a-Service (SECaaS) product, has emerged as a major growth driver for the company. Its subscription-based model provides high-margin recurring revenue, creating a more stable income stream compared to the legacy CapEx-driven Allot Smart segment. SECaaS solutions are integrated directly into telecom networks, bypassing the need for end-user installation, making them a frictionless and attractive option for service providers. This unique "network-native" feature has allowed Allot to secure partnerships with telecom giants like Vodafone and Verizon. Notably, Vodafone’s successful implementation of Allot’s solutions has encouraged the company to adopt a revenue-sharing subscription model with other telecom operators, significantly expanding its addressable market.
The growth potential for Allot Secure is immense, with its total addressable market (TAM) exceeding $5 billion. This segment has only begun to tap into its potential, driven by increasing demand for network-based security solutions. For instance, Allot’s collaboration with Vodafone has expanded to protect fixed broadband customers, showcasing the growing penetration of its SECaaS offerings. Furthermore, Allot has reported strong metrics from customers like MEO in Portugal and Vodafone UK, where new cybersecurity services have been launched. Partnerships with carriers like Verizon also present substantial revenue opportunities, with Verizon alone representing a potential annual recurring revenue (ARR) opportunity of over $1 billion.
Allot Smart, though a declining segment, has received a boost from Sandvine’s exit, allowing Allot to capture market share. This development not only stabilizes Allot Smart but also creates cross-selling opportunities for Allot Secure, as customers adopting one solution are likely to explore complementary offerings. The integration of Allot Smart and Secure has further streamlined operations and opened avenues for synergistic growth. Additionally, the company's efforts to enhance its Deep Network Inspection (DNI) capabilities have revitalized interest in its network optimization products.
Allot has reached a pivotal point in its evolution, achieving breakeven and generating positive cash flow under new leadership. The new CEO and CFO, both with extensive experience in the carrier industry, bring valuable connections that can accelerate Allot's market penetration. Despite geopolitical risks associated with being an Israeli company and potential regulatory challenges, the company's renewed focus and solid execution strategy position it for sustained growth. Economic uncertainties remain a concern, but the recurring revenue model of its SECaaS business provides a buffer against market fluctuations.
Valuation remains a compelling aspect of Allot’s investment case. Despite a significant run-up in its stock price, shares are still considered undervalued, offering room for further appreciation. The company's strategic shift to a subscription-based model, coupled with the competitive advantage of its network-native SECaaS solutions, sets it apart in a rapidly growing market. As Allot continues to expand its partnerships and penetrate new accounts, it stands to unlock substantial value for investors. Furthermore, the strong momentum in its SECaaS segment, bolstered by increasing subscriber adoption and enhanced product offerings, underpins a robust growth trajectory.
In conclusion, Allot represents a unique investment opportunity with significant upside potential. The company's transformation into a security-first business, combined with favorable market dynamics and strong execution, creates a compelling narrative for long-term growth. With the ability to capture market share from competitors, leverage high-margin recurring revenue streams, and benefit from deep partnerships with global telecom leaders, Allot is well-positioned to deliver value to its shareholders. While risks remain, the company's strategic direction and execution capabilities provide a solid foundation for its continued success.
Allot Ltd. (ALLT) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 9 hedge fund portfolios held ALLT at the end of the third quarter which was 6 in the previous quarter. While we acknowledge the risk and potential of ALLT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ALLT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
