Barracuda Networks, Inc.: Initiation of Research Coverage

Monday, December 2, 2013

William Blair & Company initiated research coverage of Barracuda Networks, Inc. (CUDA $19.56) with an Outperform rating and Aggressive Growth company profile. The company targets small and midsize business (SMB) customers and offers easy-to-use IT products in high-margin segments—content security, application networking, and storage.

Analysts Jason Ader and Jonathan Ho estimated that the company would generate revenue of $230 million in 2014 and $257 million in 2015, with adjusted EBITDA of $45 million in 2014 and $56 million in 2015.

“Barracuda Networks has a unique and proven business model that we believe can push Barracuda to the next level and accelerate growth,” Ader said. “Barracuda’s business formula consists of easy-to-use products, a powerful branding engine, a high-velocity sales model, and proactive customer support. With roughly 2.4 million organizations worldwide with between 50 and 5,000 employees and the company addressing a worldwide total addressable market of roughly $15 billion, we believe Barracuda has significant room to expand its business and brand. Our confidence is based on Barracuda’s successful expansion into new, fast-growing product areas in recent years; its cross-selling momentum; and management’s track record of execution. A SaaS-like, recurring revenue model with strong visibility and profitability underpins our optimism.”

Ho added, “Barracuda has been diversifying its business away from the maturing content security segment, with a growth rate of about 3%, toward the storage segment, with a growth rate of about 40%. Furthermore, the replicable nature of Barracuda’s model should allow the company to continue to add new products in fast-growing markets over time. We estimate billings growth will accelerate to 17% for fiscal 2015 from 15% in fiscal 2013 and 2014, based primarily on Barracuda’s continued progress in cross-selling its portfolio across the customer base. We anticipate the stock price will be driven by both multiple expansion and earnings upside as Barracuda’s cross-sell model plays out and fuels leverage in the income statement.”

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