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Proofpoint (PFPT) Down 11.4% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
·4-min read

It has been about a month since the last earnings report for Proofpoint (PFPT). Shares have lost about 11.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Proofpoint due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Proofpoint's Q2 Earnings and Revenues Top Estimates

Proofpoint reported second-quarter 2020 non-GAAP earnings of 51 cents per share, which beat the Zacks Consensus Estimate by 30.8%. Moreover, the figure increased 24.4% year over year.

Revenues came in at $258.4 million in the second quarter, which beat the consensus mark of $253 and increased 20.5% year over year.

This upside can be attributed to strong demand for its next-generation cloud security and compliance platform, ongoing migration to the cloud, solid international growth, and high renewal rates.

Top Line Details

Total billings during the quarter grew 8% year over year to $250 million.

Subscription revenues came in at $254.9 million, up 20.9% from the year-ago quarter. However, hardware and service revenues decreased 3% year over year to $3.5 million.

The company has stopped reporting results for its advanced threat and compliance-oriented products as it believes the data is not informative in terms of measuring business performance.

Proofpoint continues to expand globally. Its international business grew 28% year over year, accounting for 21% of total revenues in the June-end quarter.

Operating Details

Non-GAAP gross profit climbed 22.5% from the year-ago quarter to $207.5 million. Non-GAAP gross margin expanded 100 basis points (bps) to 74% on impressive revenue performance.

Proofpoint’s non-GAAP operating income rose 45.1% to $41.2 million.

Balance Sheet & Cash Flow

As of Jun 30, 2020, the company’s cash, cash equivalents and short-term investments were $973.3 million compared with $946 million as of Mar 31, 2020.

The company generated operating cash flow of $30.6 million compared with the $92.2 million reported in the previous quarter. Free cash flow was $18.8 million compared with the prior quarter’s $79.8 million.

Guidance

Proofpoint updated its 2020 revenue guidance. The company now expects revenues of $1.035-$1.037 billion, up from the previous projection of $1.005-$1.030 billion.

Non-GAAP gross margin projection increased to 80% from 79%.

Non-GAAP earnings per share are anticipated in the band of $1.64-$1.70, higher than its previous guidance of $1.41-$1.46.

Free cash flow is estimated in the range of $130-$140 million, up from the prior forecast of $85-$135 million.

Capital expenditures are now expected to be approximately $75 million, down from the $94 million projected earlier.

For the third quarter, Proofpoint anticipates revenues of $260-$262 million.

Non-GAAP gross margin is estimated to be 80%. Non-GAAP earnings per share are anticipated in the band of 37-40 cents.

Free cash flow is estimated in the range of $16 million to $21 million.

Capital expenditures are expected to be approximately $25 million for the ongoing quarter, including $16 million for building Proofpoint’s new headquarters.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 11.88% due to these changes.

VGM Scores

Currently, Proofpoint has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Proofpoint has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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