38% growth potential due to business focus on cyber security

A10 Networks (ATEN.US) is a leader in providing technical solutions to balance traffic, mitigate cyber attacks and improve application security. Until recently, A10 Networks has focused on providing technical solutions for balancing web traffic and developing application transfer controllers (application transfer controller or stand-alone ADC).

This is an area of ​​intense competition, with F5 Networks, Juniper Networks, Fortinet, Radware and Citrix Systems being the most prominent players in addition to the A10. Nevertheless, A10 Networks strives to keep up with emerging trends and introduce innovative products in a timely manner to meet customer needs.

One example is the company’s focus on cyber security, which is currently very relevant due to the increase in cyber attacks on the web. In its study, Check Point Technologies claims that in 2021, the number of cyber attacks against corporate networks increased by 50% per week compared to the previous week.

The company is also actively improving its products in line with the Zero Trust concept, which is a priority for many business and government organizations. This approach presupposes the possibility of threats in any segment of the network, even those previously considered relatively secure behind the “impenetrable wall” of firewalls. In fact, Zero Trust means the need for cybersecurity systems everywhere, and A10 Networks is moving in that direction.

The company is building multi-layered protection mechanisms that ensure the visibility of encrypted traffic and prevent the use of ransomware, which has done enormous damage to various organizations over the past two years.

It is worth noting that the company is successfully moving towards a cyber security business. Since 2019, A10 Networks has been able to significantly increase its DDoS / SSL and Carrier-Class Firewall / CGN revenue share from 57% to 74% in 2021. With this transition, the company has expanded the size of its addressable market. The DDoS / SSL and Carrier-Class Firewall / CGN businesses total $ 11.4 billion.

In addition to high value, they also have good growth potential. A10 Networks’ management expects these activities to grow by at least 12% and 13% over the next 3 years, respectively. In other words, A10 Networks is trying to focus on the promising cybersecurity market, which could be a great growth engine for the company in the near future.

Customer-centric business

An additional point that deserves to be highlighted is the company’s communication with customers. A10 Networks strives to adapt to changing conditions quickly enough to meet the emerging needs of its customers. In addition, the company offers excellent value for money for its products, according to a Gartner and TrustRadius online survey.

In a recent presentation, the company’s management presented the results of a survey that found that many customers using A10 Networks’ products were able to increase their productivity and save significant operating and capital costs. It is worth noting that more than 79% of customers achieve a positive return on investment in 24 months and 54% in less than 12 months.

The survey also notes that 82% of the organizations surveyed were more likely to recommend the A10 Thunder product line. The latter fact indicates that the company will not have any problems with organic growth in the near future.

To date, A10 Networks has managed to gain a huge customer base of nearly 7,000 organizations, including cloud, telecommunications, cable and gaming companies and government agencies. The company offers its products in North America, EMEA and APAC. It is worth noting that A10 Networks provides services to many large and quite significant companies and organizations, including: Alibaba, LinkedIn, Samsung, SoftBank, Twitter, Microsoft, Yahoo, China Mobile, Deutsche Telecom, US Senate, University of California.

As a result, A10 Networks’ customer-centric approach continues to deliver results. Last year, recurring revenues amounted to $ 97.2 million, an increase of 17.7%, and long-term contracts increased 12% year-on-year to $ 121.6 million. Thus, this approach may continue to grow the company’s organic revenue in the medium term.

Company ‘s financial position and valuation

A10 Networks shows strong financial position. Last year, the company’s turnover grew 11% to $ 250 million. Adjusted EBTIDA reached a record $ 62.4 million, an increase of 37% and a margin of 25%. Net income also increased 42% year-on-year to $ 50.1 million.

The value of A10 Networks is currently low compared to the industry average: company value / sales (LTM) – 3.6x, company value / sales (FY) – 3.2x, company value / adjusted EBITDA – 14.4x (LTM), company value / adjusted EBITDA (FY) – 12x, adjusted price / earnings ratio (LTM) – 18x, adjusted price / earnings ratio (FY) – 14.8x.

A10 Networks has no debt and no significant liquidity reserves. The company has cash equivalents of $ 185 million. This structure allows A10 Networks to be more flexible in business development. In addition, the company has optimized its business processes, with $ 50.1 million in cash flow operations last year and $ 45 million in free cash flow.

A10 Networks added the following solutions to its portfolio

• Thunder TPS ™ – Detect and mitigate DDoS attacks

• Thunder® SSLi® – Manage encrypted traffic

• Thunder® CFW – Redundant firewall

In 2022, the company’s management expects further improvement in its financial results and has therefore provided the following forecasts:

• revenue growth between 1012%

• recurring income growth in the range of 1215%

• EBITDA margin between 26 and 28%

Entry price: $ 13.8

Price target: $ 19

Rising potential: 37.68%

Potential dividend yield: 1.5%

Time horizon: 6-12 months

Risk: moderate

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