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.

Slowing Revenues and Declining Income at Trend Micro Helping Kaspersky in Efforts to Reach Number Three

In the paid desktop antivirus and internet security world, Symantec and McAfee have generally been recognized as the 800-pound gorillas with Trend Micro trailing at number three.  Kaspersky founder Eugene Kaspersky has expressed a strong  desire to catch up to Trend Micro.  In fact, Moscow based Kaspersky was listed   as one of only 5 global security companies in the “Leaders” portion of the Gartner 2012 Magic Quadrant for Endpoint Protection Platforms.

Disappointing  Q3 Results for Trend

Trend Micro did not have a great Q3.  First, the good news.  On the non-financial front - The company was issued over a dozen patents in Q3.  They announced   new mobile solutions.  They rolled out their 2013 Internet Security product line.  They     announced their latest iteration of their cloud-based security infrastructure, the Smart Protection Network,

Now for the bad - Year over year sales were down 2%  (Q3) , and net income, down 25%. The  drop in net sales was due to declines in both North America and Europe. Not good signs when given that the economies have been improving in these markets.   Japan had 3% growth.

On a revenue basis, (Pre GAAP before adjusting for deferred revenue) – North America  revenue declined 10% and Europe 8%.  Japan grew by 10%. (Q3 year over year)

Unlike the other major vendors, Trend Micro is heavily dependent on Japan for their revenue.  This grew to 51% in Q3 2012.  North America and Europe had 20% and 16% shares, respectively.  Sales were down in both the enterprise and consumer segments. 

Q4 is unlikely to help Trend.  Net sales are projected to be flat and net income down 41%.

This isn’t a pretty trend for Trend.  Since Kaspersky  has decided to remain a private company, there aren’t many publically available financial numbers for them, but they have to be pleased. If these trends continue, Kaspersky may be able to reach number three in 2013.

Despite their financial miscues, Trend Micro continues to be innovating. There are the patents mentioned above.   This week, Trend Micro announced their  free   Online Security Assessment Tools for Cloud, Cyber & Mobile Security.  These tools are designed to   provide customers with an assessment of their current business' security posture with respect to cloud adoption, consumerization, and targeted cyber attacks.  

Trend Micro hasn’t participated in Virus Bulletin (www.virusbtn.com ) testing since 2008.  They finished second in the AV-comparatives (www.av-comparatives.com ) "September 2012 Antivirus File Detection Test of Malicious software", however.

About Virus Bulletin   www.virusbtn.com

UK based Virus Bulletin started in 1989.  They provide PC users with a regular source of intelligence about computer viruses, their prevention, detection, and removal, and how to recover programs and data following an attack.  The Virus Bulletin website is at www.virusbtn.com

About AV-comparatives     www.av-comparatives.org

AV-Comparatives is an Austrian Non-Profit-Organization, which is providing 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.