Monday, February 04, 2013

AVG Technologies - IPO One Year Birthday. Growth Curve or Ski Slope for 2013? Forbes versus Seeking Alpha Contributors

AVG Technologies has now been public for a year.  Their IPO (Initial Public Offering) took place in early February, 2012,  The stock   closed around $13.08 on its opening day last February  on Nasdaq  after targeting an opening day price at $16 plus.   The stock closed  on February 2, 2013  at  $13.14.  These two figures represent a one-year return of 0.38% excluding transaction costs and any dividends paid.  For the first 9 months of their fiscal year, AVG Technologies  revenue was up, but net income was down (not good as a trend).   Over the course of the year, AVG had a low of $9.42 and in December, had a high of $16.38. They have toolbar  deals with both Google and Yahoo.

 A Motley Fool Perspective - February

One worries about the thoroughness of AVG's protection, however, when one sees they've not been very thorough in safeguarding their finances. Current ratio is a quick-and-easy indicator of a stock's health, especially for a smaller company such as AVG which may lack the resources to bail itself out in the long term. With a current ratio of 0.7, AVG is struggling.
But T.M., you might say, AVG could be using its profits to expand, research, etc. etc. Their declining margins,  however, tell another tale: one of a company whose long-term solvency and profitability is in doubt.

So what do Forbes contributor Jim Oberweis and Seeking Alpha contributor Eiad Asbahi see for the company? 

3 Slow Growth Small-Caps with Big Potential – Forbes 

Forbes’ numbers are inaccurate in the article.  AVG Technologies has more than 110 million computer users.  While they have been losing share, according to Opswat, they claim an active user base of 143 million users.  Some of this is attributable to 25 million copies of their Internet Security Suite (the paid) product given to purchasers of Huawei (Yes, that Huawei) mobile devices, in India.  

Forbes contributor Jim Oberweis likes AVG for the company’s PEG ratio, growth prospects, and the fact that the free product received a PC Magazine Editor’s choice award.  He likes the Google relationship. See links at the bottom of this blog for relative rankings of the paid AVG Antivirus and AVG Internet Security  solutions. The print article will be in the February 11 issue.

AVG: Feb 1st Google Policy Updates Threaten AVG's Growth Engine, Signals Steep Downside

In a  January 31 Seeking Alpha article,  Seeking Alpha contributor Eiad Asbahi is forecasting a share price of $8.50 to $10 per share (elsewhere in the analysis, the figures are $7.30 to $10.28).  This is based on an extensive quantitative analysis based on a supposed change that will be occurring in Google’s toolbar policy.   

According to the article, “Google (GOOG), AVG's primary search partner and currently the source of substantially all of AVG's Platform-derived revenue, is on the verge of announcing an update to its toolbar policy, something that has not been widely followed or discussed by market participants.”  This would require companies to make use of “opt-out” instead of having “opt-in” checked automatically on the customer’s behalf.  Opt-in has been a point of consternation among many users of many software packages.

In the article, he mentions Yahoo CEO Marissa Mayer was asked about this policy change.  Her response,   "On the Toolbar change from Google, we'd be remiss to offer comment on another company's product, so I'm not going to comment further there.”  AVG Technologies has a toolbar  agreement with Yahoo as well as Google. Previously, they had been exclusively one company or the other.

Asbahi did some number crunching based on different churn rates for users prior to and after February 1, 2012, an opt-in rate of 65% and per user revenue from Yahoo search bar users at 50% of Google tool bar users.  After all of his number crunching,  his estimates for AVG Technologies 2013 revenue to be between $248M and $287M,  an “ implied market capitalization and target price would between $399M and $569M, or $7.34/share and $10.28/share respectively.” On CNETs download site, AVG averages around a million downloads a week, suggesting major churn.

From a November 1 Financial Times blog,  “J R Smith, chief executive of AVG, admits that being the first in the industry to offer free products has “kind of put us a little bit in a box”, but slowly the company is succeeding in convincing investors that AVG has evolved from offering just hardcore security into other services and platforms”

AVG made a buy versus make decision regarding mobile security in November 2010 with a $4.1 million acquisition of Droidsecurity to gain entry into mobile security market. 

AVG Technologies should be reporting their earnings on February 21.    
For some comparative reviews of paid antivirus and internet security products by PC Magazine, go to:

About OPSWAT    

Founded in 2002, OPSWAT is the industry leader in software management SDKs, interoperability certification, and multiple-engine scanning solutions.

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