Proofpoint (PFPT) reported a great start to the year with revenue growing 23% compared to the year-ago period and came in above both management’s previous guidance range and expectations. The company continues to do a good job weathering the uncertain economic environment and has a path towards increased profitability over time.
Management lowered their 2020 revenue guidance, which now implies ~13-16% growth compared to their previous guidance of ~20% growth. However, I believe there remains a lot of uncertainty in the economy and management could be providing a somewhat conservative outlook.
As more and more employees are working from home, the need to have strong email security is even more important. Right now, companies are focused on adjusting to the new economic conditions, but over the next several quarters this focus could shift more to increasing their IT security spend.
Since reporting earnings a few weeks ago, the stock has traded down ~15% and I believe now is a great buying opportunity. Revenue growth is likely to remain uncertain over the next few quarters but over the longer term, I believe demand will rebound as companies invest more into email security and revenue growth could return to 20%+.
Even though 2020 revenue guidance was lowered ~5% at the midpoint, EPS guidance was hardly lowered, which demonstrates the company’s ability to leverage their operating expenses. While we might not see operating margins expand in the next few quarters, this does give investors insight into PFPT’s flexible operating model.
The stock currently trades at ~5.1x 2021 revenue, which seems to be a little low for a consistent 20%+ revenue growth company with a large market opportunity ahead of them.
The massive transition to a work from home environment over the past few months could cause two major tailwinds for PFPT. First, while a majority
