Saturday, November 15, 2014

AVG Technologies in Play, an Alternative Look at Q3 Financial Results

The San Francisco Giants win the World Series in even numbered years.  Rumors circulate about AVG Technology being an acquisition candidate occurs in odd number years. Okay, even numbered as well. Couple that with  so-so financial results? You may want to sell, as well.  

Even before AVG went public, there were “always” rumors about them being for sale as the right price.  Companies being mentioned usually included Hewlett Packard and Cisco. Earlier this year, AVAST Software, an AVG competitor, signed a binding  agreement with CVC Capital Partners for a major investment in the company. The investment valued Avast at about $1 billion US.

Other than throwing off cash for the investors, AVG has   been something of a disappointment. The plan was to go public in early 2012  at $16 to $19.  Instead, they opened and closed around $13. AVG’s market cap, as of 11/15 is just under $1 B.

From a technology standpoint, AVG's growth has been through purchase rather than developing things in house. In September, 2014 they purchased Location Labs, a provider of security for mobile technology. http://now.avg.com/avg-solidifies-leadership-in-growing-mobile-security-market-with-acquisition-of-location-labs/

AVG  entered the mobile security market by purchasing the Israeli firm DroidSecurity in late 2010 DroidSecurity had both a free and paid prospect).  They   increased their share by quietly giving the product away on certain Huawei mobile phones in India (That  announcement appeared on the web and disappeared quickly.  Huawei was being investigated in the 2012 time frame  by the US congress for potentially posing a security threat).

In product testing (ability to stop malware), AVG has failed to be one of the leaders. In AV-Comparatives October Real World Protection tests, AVG came in 10th out of 22. In the September, "File Detection Test of Malicious Software", AVG received on star,finishing 20th out of 22.
(www.av-comparatives.org)  In the Virus Bulletin (www.virusbtn.com ) RAP (Reactive and Proactive test), they weren’t in the top 20. ( https://www.virusbtn.com/vb100/rap-index.xml)

On to the financials. AVG Technologies has their headquarters in the Netherlands. They have an office in Ireland.   Those interested can find multiple stories on the “Double Irish” or “Double Irish Dutch Sandwich”, a technique to significantly g reduce US taxes.  Just saying! Apple and a number of US companies are being creative in using this technique.

For those focused only on revenue (hello analysts), AVG’s 9 months subscription revenue and SMB revenue (less than 15% of their business), is up for the first 9 months of 2014 versus 2013. Trailing revenue, Consumer and Total Revenue, and US Revenue, all down.

For those focusing more on  the bottom line, net income, consumer income, Net Income, Consumer Income, SMB Income, and Operating Income are all down for the first 9 months of 2014.

For those focusing on cash, Net Cash provided by operations is down 35% for the first nine months of this year. The data below is from their latest Form 6-K, available on AVG's web site. 




One would have thought that the positive vibes and karma emanating from the SF Giants home ball park (ATT Park) would have rubbed off on AVG Technologies, given AVG’s US headquarters near proximity to the park. Not the case, however.