AVG Technologies 2012 Revenue - View Far From Investment Firms

The below is a quick look at AVG Technologies’ 2012 revenues.  The bulk of the figures below are from AVG Technologies Form 6-K, available on their web site.  Disclosure - I can comfortably talk with the “smartest guys in the room” and even own multiple suits.  This is not a look at the marketing strategy.  Just some bullet point observations from afar about revenue, net income, cash.

March 7 addendum -  CEO JR Smith  resigns -  AVG Technologies N.V. (AVG) said J.R. Smith will step down as chief executive after a six-year tenure at the helm of the Internet and mobile-security provider, which is conducting a search for his successor. http://online.wsj.com/article/BT-CO-20130307-715759.html  He is remaining  on the board.

• Overall revenue up 31% to $356 million - Good.  Subscription based revenue was up 12% while platform based revenue was up 65%.  Platform based revenue now comprises  45% of AVG’s revenue (Can you say Google?).  
  
• In a Seeking Alpha article - “AVG: Feb 1st Google Policy Updates Threaten AVG's Growth Engine, Signals Steep Downside”.  Google would require companies to make use of “opt-out” instead of having “opt-in” checked automatically on the customer’s behalf.  The author of the article, Eiad Asbahi, is forecasting reduced revenue for AVG because of this.  http://kensek.blogspot.com/2013/02/avg-technologies-ipo-one-year-birthday.html
• Net income dropped 44% to $46 million in 2012 from 2011.  This usually isn’t a good thing, especially when revenue is up 31%.  Not a sustainable model.
• Gross profit margin dropped 3% from 89% to 86%.  Most industries would be envious, even with the decline.
• From Motley Fool. Short shares as a percent of float 18.6%.  For Symantec, the figure is 1.6%.
• From Motley Fool.  Short shares increase between January 31 and February 15, 278.5%.  Ouch for both of the figures from Motley Fool.  One would like investors to have confidence that the stock will go up.  http://www.fool.com/investing/general/2013/03/04/shorts-are-piling-into-these-stocks-should-you-22.aspx
• Current ratio Symantec – 1.06.  Current ratio – AVG Technologies  - .54.
• Happiness is positive cash flow -AVG has been generating cash.

An interesting statement in the notes - "The Company’s profit and loss tax charge varies from period to period and has shown significant variations from its cash tax charge.  In particular, the Company’s entry into an innovation tax regime in the Netherlands resulted in a significant tax credit in June 2011, which will be reversed in future periods."  You have to love companies with offices in the Netherlands, and Ireland, and bank in the Cayman Islands.  All legal.  All companies with some combination of these should be required to state the number of square feet dedicated to the company  that they rent in these locations. No counting shared conference rooms. And a picture of the Post Office box.   For a discussion on some of this:  

 http://kensek.blogspot.com/2012/04/double-irish-with-dutch-sandwich-yummy.html

It should be an interesting year two for AVG Technologies as a public company following their IPO (initial public offering).  They appear to have an increasing reliance on securing mobile devices.  They just announced a deal with Samsung in the UK for purchasers of Samsung mobile users to download AVG’s mobile product for  free .  On the laptop/PC side and  on the free download side, Avast had 1.21 million downloads on www.download.com  versus 0.87 million for AVG Free Antivirus for the week ending March 3.  However,  CEO JR Smith has stated that AVG has been diversifying their product line. Perhaps this gap compared to Avast  is to be expected. Avast cancelled their IPO over a year ago.

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.

 http://beta.fool.com/tmloyd/2013/02/11/world-wide-web-investment-here-today-gone-tomorrow/23612/?ticker=AVG

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.

 

http://www.forbes.com/sites/investor/2013/01/23/three-slow-growth-small-caps-with-big-potential/

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”  http://blogs.ft.com/beyond-brics/2012/11/01/corporate-watch-avg-breaks-out

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:

http://kensek.blogspot.com/2012/09/best-antivirus-2013.html

http://kensek.blogspot.com/2012/09/best-internet-security-suites-2013-best.html

 

About OPSWAT www.opswat.com    

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

OPSWAT market share reports are available at http://www.opswat.com/media/reports    

Avast Giving Their Premium Endpoint Security Product to US Schools and Non Profits

Internet Security and Antivirus vendor Avast is giving their internet security product suite free to schools and non-profits in the US.  The freemium strategy for Avast, Avira, and AVG Technologies for years    has been to give a basic anti-virus product away to home users only and then attempt to up sell them to a paid product.  They  would  sell  antivirus,   internet security, and server protection products to the business, government, and education markets.  

 For Avast, the freemium strategy has given them world endpoint market share leadership over Avira, AVG and all the paid antivirus  companies, with approximately 170 million installed endpoints.  Microsoft is leading in market share in the US  with their free product.  http://kensek.blogspot.com/2012/12/opswat-market-share-reports-antivirus.html In fact, Avast had planned to go public earlier this year with this strategy, and then cancelled the IPO (Initial Public Offering) in July.   

Avast is   giving their premium product away to schools and non-profits, subject to restrictions explained on their web site.  This isn’t a stripped down suite.  In terms of features and functionality, it matches Symantec Endpoint Protection, McAfee’s SMB Endpoint Protection, and Kaspersky Business Space Security in terms of features and functionality. 

http://www.avast.com/en-us/education#comparison

All public educational institutions in the US are eligible to use AVAST’s premium, business-grade Endpoint Protection Suite at no cost.  The educational license includes two central management control options.It also includes: 

• Protection for Windows, Mac, and Android endpoints
• Protection for servers supporting up to 30,000 endpoint devices
• Remote management for all supported devices on campus

http://www.avast.com/en-us/education

In a December 2 talk with USA Today, Avast director of strategy Jonathan Penn said, “We're not going to charge schools for this, not now, not later.   We're establishing this to help schools that are struggling more than ever for funding."  http://www.usatoday.com/story/tech/2012/12/02/avast-antivirus-protection-free-to-schools/1729925/

 

Antivirus and internet security   vendors have been diversifying their portfolios into such products as mobile (paid and free) and tablet security. In  some instances they have also introduced  multiple flavors of internet security suites, tune-up, and online back-up products.

AVG Technologies CEO Smith  told the Financial Times in  a November interview,   “If you and I were having this conversation a few years ago, we’d be discussing a free product with premium-based services – but that model won’t get you anywhere today.”  http://blogs.ft.com/beyond-brics/2012/11/01/corporate-watch-avg-breaks-out/    

  

AVG seems to be  tying their future revenue streams to a renewed search provider agreement with Google, and a new agreement with Yahoo (whom they had an agreement several years ago (about those toolbars...)). There  other security vendors have to be  wishing they had these deals!  Their growth in revenue is coming from platform deals.  9th month subscription  based revenues for 2012  has grown 10% over 2011. Platform based revenue  has grown 72%  over the same period and comprises about 45% of their revenues.  Net income over this time frame dropped about 60%.

Avast delivers good security.  In an AV-comparatives.org test in September “File Detection of Malicious Software, they came in tenth out of twenty (Avira was first), and earned three stars.  They came in ninth out of twenty-four products in a November test performed by www.av-test.org .  BitDefender won that test. 

The Avast website is at www.avast.com

 

Perhaps the press, interest, and increased visibility Avast will gain through this deal will lead to an initial public offering in 2013.  One thing this move by Avast will do is take sales away from vendors who sell into the education market, although at a reduced price. These vendors may choose to cannibalize themselves by doing a price match.  That doesn’t help the bottom line, though.  

About AV-comparatives     www.av-comparatives.org

AV-Comparatives is an Austrian Non-Profit-Organization.  They provide independent Antivirus software tests free to the public.  Go to their website to view all the great comparative reports and surveys they publish.  A great number of their reports are free.

What is Facebook worth Revisited - Latest Earnings Report - Employee Stock Lock-Up Expiring Shortly

Facebook released their financial results on Thursday.  Facebook’s  growth figures in their first quarter   as a public company following their IPO would have been impressive for most companies.  Nonetheless,    

Facebook stock took ­­ a  face plant following   the earnings release.  Below is a second quarter summary of their financial results. On Friday, Facebook closed at $23.71.  This gives them a market capitalization of $44.5 billion.  Click to enlarge the table.  CEO Zuckerberg may stay under the radar for the next several weeks.  

 

 The $95 to $100 billion  IPO pundits are taking a low profile.  Probably focusing on their tweeting.

In May, GreenCrest Capital’s Max Wolf felt that Facebook's  financial numbers suggested a valuation of $60 billion.  This is 37%   less than the $96 billion Facebook was thinking of.  His figure as of July 27, is off by only $15 billion, on the high side. 

Also in May,  Anup Srivastava, an assistant professor of accounting information and management, Kellogg School of Management, ran a valuation model and arrived at  a base case valuation  of $25 billion.  “This is based on the firm’s revenues reaching approximately $21 billion in ten years’ time from approximately $4 billion today, and the firm maintaining a high return on assets of approximately 20 percent.”   His model, as of July 27, is off by only $19 billion, on the low side.  The last link at the bottom of this blog leads to Srivastava’s original article in “Expertly Wrapped” an online publication by Kellogg faculty. This also provides  a link to his valuation model.  Discounted cash flow analyses can be a good thing!

As an amusing aside, average the two figures above by these individuals - $44.8 billion, off by only $0.3 billion !  A sample of two smartest guys in the room probably doesn’t qualify for wisdom of crowds status. 

Facebook will free up nearly 1.7 billion shares -  four times the number now trading,  beginning in August.  Provisions   currently barring  employees from selling their holdings will start.  Unfortunately for the employees, if they execute these immediately, they are taxed as regular income. 

Shares of online coupon purveyor Groupon Inc. declined 8.9% when its lock-up expired on June 1.  The stock dropped nearly 20% that week. Likewise, shares of online gaming company Zynga Inc. fell 7.9% when its lock-up expired on May 29. The stock price ended up falling    9.1% for the week.  Look for some sort of dip as Facebook employees start selling some of their stock,  and people continue accessing Facebook on their mobiles. No revenue for Facebook when they do this.

Real estate agents in Palo Alto,  Atherton, and Menlo Park (where Facebook is headquartered), are probably looking at Facebook’s stock price a lot more than mortgage lending rates. 

http://www.latimes.com/business/la-fi-facebook-shares-20120728,0,1045145.story

http://kensek.blogspot.com/2012/05/is-facebook-really-worth-96-billion-in.html

 

http://kensek.blogspot.com/2012/02/is-facebook-really-worth-100-billion-in.html

 

Avast Thursday Initial Public Offering Postponed

 From the Original Post - Updates at End of Blog

Antivirus software company Avast will have their Initial Public Offering (IPO) Thursday.  The ticker symbol will be AVST. The roadshow is about at an end! Palo Alto Networks' successful IPO Friday suggests that the IPO  market may be open again.

Avast plans to offer 9 million shares at between $9 and $11 each with this IPO. The price  may be tweaked on Wednesday. The lead underwriters for the IPO are UBS Investment Bank, Deutsche Bank Securities and Jefferies & Co.  Avast uses the freemium strategy for their antivirus software. Avast  develops anti-virus software, specializing in a free version of its product used by consumers. They then offer  upgrades that can be purchased.  Avast is number one in OPSWAT’s most recent world wide industry market share analysis for antivirus software. www.opswat.com

 

James Krapfel of Morningstar said Avast is going public at a time when “the company’s software is installed on 20% of the worldwide consumer and small business PCs.” Krapfel called Avast “a higher quality peer” to rival AVG Technologies AVG  with sales growing at twice AVG’s annual rate.

  

Below is a summary of some of their financial data, revenue, income, etc. Click on it to enlarge.

Avast’s freemium competitors include Avira, AVG Technologies, PC Tools, and Panda.  Microsoft offers a free version of antivirus but no paid versions.  The Avast current installed base in about 159 million. They most recently had 1.72 million downloads on www.download.cnet.com   last week.  

 July 29 updates - Avast was the most popular free  antivirus download on CNET  for the week ending July 29, with 1.69 million downloads.


Updates


 July 30 update - Avast was the most downloaded free AV product on download.com for the week ending July 29 with 1.69 million downloads.

July 25 update - Avast Software  postponed its IPO on Wednesday evening, citing poor conditions. 

AVG Technologies executive JR Smith told  the Financial Times on Thursday that the  IPO situation for CEE tech companies is likely to get worse before it gets any better. “We are a European software company and we are pretty close to what is going on here, and start-ups and those companies looking for additional capital investment will find it tougher for sure over the next 12 to 18 months.”

The Avast  S-1 filed with the SEC   can be viewed at the link below.   Informative reading.

http://www.sec.gov/Archives/edgar/data/1537133/000104746912007168/a2210121zf-1a.htm

 

For more information, go to

http://kensek.blogspot.com/2012/07/avast-files-for-90-million-initial.html

 

Avast Files for $90 Million Initial Public Offering (IPO)

After first talking about going public in December, Avast filed an updated S-1   with the SEC (Securities Exchange Commission)  on July  12.  They’ll be trading on Nasdaq   under AVST.  The IPO (Initial Public Offering) will be for $90 million.  Anticipated offering price of the IPO, $9 to $11 per share.  The information in the S-1 lists  their installed base at about 159 million users.  The 190 million figures will probably be disappearing from their web site.  The definition resulting in 190 million may be different, however. When going IPO, accuracy in these docs is kind of importan. Legal people like that. 

Avast  may have wanted to go public earlier in the year.  The Facebook debacle temporarily  sucked the wind out of  the industry’s IPO sails.   The $90 million figure is down 55% from the $200 million figure that was floated earlier this year.  The bookrunners on the deal are   UBS Investment Bank, Deutsche Bank Securities, and Jefferies & Co.   

According to Renaissance Capital, by offering 9.0 million shares at a price range of $9.00 to $11.00, and at the midpoint of the proposed range, Avast Software will command a market value of $850 million.  IMHO, this sounds high.  AVG Technologies’ revenue run rate is approximately $300 million and with a more diversified revenue stream, they went public with a market capitalization of around $700 million.  Annualizing 2012 first quarter revenue of $27 million, and using a 5x multiple, gives a market cap of $540 million.  This is a crude methodology (first link at the bottom of this blog for details). Look for the pricing to result in a positive “pop”.  Facebook lost quite a few friends following the plunge in their stock following opening day.  Negative pops - bad. Unlike.

The Avast  updated S-1 filed with the SEC   can be viewed at the link below.  There must be an unwritten rule that S-1 documents have to run about 160 pages,  before attachments.  The Avast S-1 is  approximately the same length as the S-1 filed by Palo Alto Networks.  The risk factors run about 25 pages.

http://www.sec.gov/Archives/edgar/data/1537133/000104746912007168/a2210121zf-1a.htm

Like their   Prague/Netherlands based competitor, AVG Technologies, Avast will officially be headquartered in the Netherlands.  “We are incorporated under the laws of the Netherlands and on this basis are subject to Dutch tax laws as a Dutch resident taxpayer.  We believe that we are resident solely in the Netherlands for tax purposes and that we, and in certain cases, the holders of our shares, can rely on this position for purposes of the application of tax treaties concluded by the Netherlands with other jurisdictions.  Read “Double Irish with a Dutch Sandwich – Yummy Way For Corporations to Reduce Federal Taxes”.   http://kensek.blogspot.com/2012/04/double-irish-with-dutch-sandwich-yummy.html

Additional verbiage, probably standard for non US based companies listing on Nasdaq – “As a foreign private issuer whose shares are listed on the NASDAQ Global Select Market, we have elected to follow certain home country corporate governance practices instead of certain NASDAQ requirements.” “We do not comply with all the provisions of the Dutch Corporate Governance Code.  This may affect your rights as a stockholder.”  These are explained in detail in the S-1.

According the June   2012 “OPSWAT Report on Worldwide Security Industry Market Share Analysis”, Avast is number one in worldwide antivirus market share.  Also in the top 5, Microsoft, Eset, Symantec, and AVG Technologies 

 http://kensek.blogspot.com/2012/06/june-2012-opswat-report-on-worldwide.html .   

The Avast  free product received 3 stars (out of 3) and finished tenth out of twenty in the March “On-demand Detection of Malicious Software” test done by AV- Comparatives  www.av-comparatives.org .

Below is a snapshot of some of Avast’s financial data (revenue, income, etc.)  for the last several years (click on it to enlarge).  Like AVG, Avira, Microsoft, and PC Tools (somewhat quietly owned by Symantec),  Avast also uses a freemium model.

Avast has a corporate office just north of Silicon Valley in San Mateo, California.  A 20 mile hike to AT&T Ballpark,  for San Francisco Giants  baseball games.  AVG Technologies California employees?  They just have to walk across the street.  Very cool.

Don’t look for any of the Avast  officers or directors to be pictured wearing hoodies during the roadshow on the day they go  public.  The major stockholders are Eduard Kucera (30%), Pavel Baudis (30%), and Summit Partners (22.6%).  Let the public roadshow begin.  Hodně štěstí.  Pivo prosím.

For additional light reading:

http://kensek.blogspot.com/2012/01/what-would-avast-softwares-valuation-be.html

http://kensek.blogspot.com/2012/05/avast-gradually-moving-forward-with-ipo.html

 

 http://kensek.blogspot.com/2011/12/avast-software-files-for-200-million.html
 

http://kensek.blogspot.com/2012/03/march-2012-opswat-report-on-worldwide.html

July 18 - Palo Alto Networks To Go Public Friday

July 18 addendum -  Palo Alto now expects to charge $38 to $40 a share in its public debut, up from the previously stated range of $34 to $37, according to an updated regulatory filing uploaded Tuesday evening. They expect  to establish a final price for the shares Thursday night and debut in public trading Friday.  A positive way to look at this.  The offering may be way oversubscribed. A negative way. Isn't this what Facebook did? Didn't the Facebook investors  get burned?  Proceeds may be up to $250 million.  A link to the most current S-1 is below.

July 14 addendum -  Venture capital firms Greylock Partners and Sequoia Capital will each hold 20.7% of the company after the IPO (Initial Public Offering), and Globespan Capital Partners will hold 7.4%.  They'll be listing as PANW.  The offering is scheduled to price on July 19, according to Bloomberg.

  They may try to raise as much as $229 million.  The initial anticipated price range, $34 to $37. This may help start up IPO activity again.   The IPO will take place on the NYSE. At the top of this pricing, they will  have a market capitalization of $2.5 billion. 

Firms leading the Palo Alto Networks IPO offering – primary lead is Morgan Stanley.  Others include Goldman Sachs, Citigroup Global Markets, Credit Suisse Securities, Barclays Capital, UBS Securities, and Raymond James. Palo Alto Networks filed their S-1 in April, reporting a loss of $12.5 million for the fiscal year ended July 31.  This is compared with a $21.1 million loss a year earlier.  Revenue had more than doubled to $118.6 million.  In a June filing, Palo Alto Networks  reported that third quarter sales for the three months ended in April rebounded to $65.7 million, for a 16% increase.  

To view the S-1, go to the link below.  The S-1 is about 160 pages of light reading. The S-1 is the amended July 17 version.
 
http://www.sec.gov/Archives/edgar/data/1327567/000119312512304885/d318373ds1a.htm

When Palo Alto Networks filed on April 6,  the  valuation of the IPO was for $175 million.  Unlike the Facebook IPO that had Zuckerberg owning roughly a gazillion shares and a major portion of the company, Palo Alto Networks founder   and Chief Technology Officer Nir Zuk owns 6.2% of  the Palo Alto Network shares. 

Palo Alto Networks and Check Point Software Technologies are the only two companies in the Leader portion 2011 Gartner Magic Quadrant for Enterprise Firewalls.

The patent infringement lawsuit file by Juniper against Palo Alto Networks late last year is still going on.

After the Facebook implosion, look for this to be  a reasonably priced IPO, with a reasonable pop.  Don’t put your money on an NYSE meltdown like the one Nasdaq had with Facebook.  Perhaps it was all the stress over Zuckerberg’s wedding that occurred shortly after the IPO.

Meanwhile, on the chest thumping front,    “Is Check Point's firewall really faster and cheaper?  Can they really see all apps on all ports?  Or even identify unknown traffic?”  Go to http://www.paloaltonetworks.com/cam/techbusters/  to view Palo Alto Networks’ video take on the situation.