Cyber Security ETFs To Watch On String Of Q2 Earnings Beat

internet etfsSweta Killa:  Cybersecurity companies have been gaining immense popularly in recent years as this corner of the market represents one of the few growth opportunities left for developed market investors. With extensive adoption of Internet usage in mobiles and computers, and ceaseless cyber-attacks, demand for cyber security and overall spending by corporates and governments on it are rising by leaps and bounds.

As a result, the industry is flourishing as evident from the latest quarterly earnings results. Most of the cyber security firms beat our earnings and revenue estimates, and provided an upbeat guidance. This has spread confidence in the space though earnings reports from many are still awaited.

Cyber Security Earnings in Focus

Fortinet (NASDAQ:FTNT) has been one of the major outperformers in the space as the stock climbed as much as 13.1% on the next day following the Q2 earnings announcement on July 22, after the closing bell. Earnings per share of 3 cents came in ahead of the Zacks Consensus Estimate by a penny while revenues of $240 million also edged past our estimate of $227 million.

For 2015, the company raised its revenue forecast to $1.0–$1.1 billion from $935–$940 million and reaffirmed its earnings per share guidance of 51–52 cents. The Zacks Consensus Estimate at the time of earnings release was pegged lower at $940 million for revenues and 23 cents for earnings. Further, for the ongoing third quarter, Fortinet sees revenues in the range of $255–260 million and earnings per share of 12 cents, both of which were much higher than our estimates of $235 million and 7 cents, respectively. To date post earnings, shares of FTNT are up 10.3%.

Check Point Software Technologies (NASDAQ:CHKP) topped our estimates on both the top and the bottom lines by 3 cents and $3 million, respectively. It expects earnings per share of 92 cents to $1.02 on revenues of $392–$410 million for Q3. The midpoints are well above our estimate of 87 cents for earnings but below our estimate of $403 million for revenues at the time of the earnings release. For the fiscal year, revenues and earnings are expected in the range of $1.6–$1.65 billion and $3.90–$4.02, respectively. The midpoints of both are well ahead of the Zacks Consensus Estimate of $1.63 billion and $3.66, respectively.

The stock climbed as much as 10.1% on the day of its earnings announcement on July 22 and is up 3.2% to date post results.

Fireeye (NASDAQ:FEYE) also reported solid Q2 results but the stock fell as much as 8.9% on the news of the resignation of its chief financial officer (CFO) Michael Sheridan. Net loss of 78 cents came in narrower than the Zacks Consensus Estimate of 84 cents loss and revenues of $147 million surpassed our estimate of $143 million. Fireeye expects revenues of $164–$168 million for the third quarter and raised its guidance for the full year to $630–$645 million from $615–$635 million. The midpoint of the range is below the current Zacks Consensus Estimate of $167 million and $639 million, respectively.

Net loss per share is projected at 44–48 cents for the third quarter and $1.70–$1.80 for the full year, narrower from the previous guidance of $1.75–$1.85. The Zacks Consensus Estimate is currently pegged at a loss of 87 cents for the third quarter and $3.25 cents for the full year. Shares of FEYE have fallen 9.4% to date post its earnings announcement on July 30, after the closing bell.

Proofpoint (NASDAQ:PFPT) surged as much as 7.6% the next day following the earnings announcement on July 23, after the closing bell. The company reported loss per share of 47 cents, in line with the Zacks Consensus Estimate while revenues outpaced our estimate by $3 million. The company expects revenues in the range of $65–$66 million for the ongoing quarter and $255.5–$257.5 million for the full year. The midpoints of both are slightly below the current Zacks Consensus Estimate of $66 million for the third quarter and $257 million for the full year.

Loss per share is projected at 11–12 cents for the third quarter and 39–40 cents for the full year; narrower than our current estimate of loss of 57 cents and $2.09, respectively. However, the stock is down 5.1% to date post earnings announcement.

Last but not the least, Imperva (NASDAQ:IMPV) jumped more than 12% in extended trading hours following the earnings announcement on August 6, after the closing bell. Loss per share of 56 cents narrowed and revenues of $53.5 million came ahead of our estimates. For the third quarter, the company expects loss per share in the range of 5–6 cents and revenues in the range of $55–$57 million. The midpoints of both are much higher than the current Zacks Consensus Estimate of 55 cents for the ongoing quarter and $52 million for 2015.

For the full year, Imperva raised its revenue guidance to $215–$217 from $202–$207 and narrowed the loss per share guidance to 44–46 cents from 63–77 cents. The current Zacks Consensus Estimate is pegged at $206 million for revenues and $2.39 for earnings.

ETFs in Focus

The string of earnings beat and solid stock performances by many cyber security firms have put this niche area of the technology sector in focus for the days ahead. Currently, there are a couple of cyber security ETFs which are detailed below:

PureFunds ISE Cyber Security ETF (NYSEARCA:HACK)

The fund offers global exposure to those companies that ensure safety to computer hardware, software and networks, and fight against any sort of cyber malpractice. It tracks the ISE Cyber Security Index, holding 32 securities in its basket.

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