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Check Point Software Technologies (NASDAQ: CHKP) needed to reassure investors that it isn't losing ground in the cybersecurity market, but its latest set of results indicates otherwise. The cybersecurity specialist failed to match Wall Street's revenue expectations during the fourth quarter, reporting its slowest top-line growth in the past five years.
The problem at Check Point
Check Point is facing execution challenges in the U.S., where its revenue has been declining for the past two quarters despite efforts to reorganize its sales force. The company believes that the reorganization will take time to deliver, raising a red flag for investors, as rivals such as Palo Alto Networks and Cisco are moving at a greater pace to tap the fast-growing cybersecurity market.
Palo Alto's revenue grew 27% year over year last quarter. Meanwhile, Cisco's cybersecurity business is its fastest-growing segment, reporting 14% year-over-year growth in the last-reported quarter.
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On the other hand, Check Point's guidance turned out to be a big disappointment, representing a stark slowdown in revenue growth. The company's revenue guidance range of $440 million to $460 million and the adjusted earnings per share range of $1.25 to $1.30 are well below the consensus estimates. Wall Street was originally expecting $1.32 per share in earnings on revenue of $462 million.
The full-year forecast was also disappointing, indicating that Check Point's top line will grow just a shade over 5% in fiscal 2018, down from the 6.3% growth seen in 2017. This is alarming when you consider that overall cybersecurity spending is expected to rise at least 8% this year, according to Gartner.
So Check Point's quarterly results and the accompanying guidance don't inspire any confidence. But there were some positives that could keep investors interested in the company.
A look at the good news
Check Point reported solid bottom-line growth once again. The company's net income jumped close to 8% last quarter, outpacing the top-line growth as it managed to keep costs under control. In fact, the company's spending on sales and marketing dropped almost 9% year over year thanks to the growing contribution of subscription revenue to its top line.
Check Point's subscription-based revenue increased 18% year over year to $130 million, while software updates and maintenance revenue jumped 5.6%. With the company's subscription revenue growing at a decent pace, this implies that the updates and maintenance business will gain momentum as Check Point sells more subscriptions.