Time to buy Cyber ​​Security ETFs after decent Q4 results?

While the cybersecurity industry has lost momentum over the past few months, in part due to weakness in the broader technology sector, it is poised for exponential growth in the coming years in the face of rising cybercrime and the need to protect against these threats. According to Gartner, global security spending will increase 4.7% year-over-year to $75.4 billion in 2015, with some analysts predicting the global market will grow from $77 billion in 2015 to $170 billion in 2020 .

The Q4 earnings reports of several industry players reflect this trend, as most of them exceeded our earnings and revenue estimates, giving a promising outlook. However, they failed to propel the space and its ETFs higher, which could suggest an attractive entry point at current levels (read: 16 Bold ETF Predictions for 2016).

Let’s take a look at the earnings performance of some of the cybersecurity companies that have the largest allocation to ETFs in this industry:

Cybersecurity profits in focus

CyberArk Software (CYBR) reported earnings per share of 30 cents and revenue of $51.5 million, beating the Zacks Consensus Estimate of 13 cents and $44 million, respectively. For the current first quarter, the company forecasts earnings per share of 15-16 cents on revenue of $42.5-43.5 million, representing year-over-year growth of 29-32%. The bottom line of both guidance was well above the Zacks Consensus Estimate of 12 cents in earnings and $42 billion in revenue.

In 2016, revenues are expected to grow 27-29% to $205-207 million, with earnings per share in the range of 83-86 cents. The low-end of both full-year estimates were also well ahead of the Zacks Consensus Estimate of $203 million in revenues and 67 cents in earnings. However, analysts expected earnings per share of 17 cents and 91 cents for the current quarter and fiscal year, respectively, which sent CYBR shares lower after the Feb. 11 earnings announcement after the closing bell. The company’s shares lost 10.8% on February 12.

Fire Eye (FEYE) it exceeded our profit estimates but fell short of revenue. Net loss was 73 cents per share, missing the Zacks Consensus Estimate of a loss of 76 cents, but revenue of $185 million missed our estimate of $187 million. FireEye expects revenue of $167 million to $177 million for the first quarter and $815 million to $845 million for the full year. The midpoint of the range was in line with the Zacks Consensus Estimate for the quarter and above our estimate of $824 million for the year at the time of earnings release.

Net loss per share is expected to be 49-53 cents for the first quarter and $1.25-$1.32 for the full year. The midpoint of both estimates was better than the Zacks Consensus Estimate of a loss of 81 cents and $3.00, respectively. FEYE shares fell 3.3% during the regular trading session after earnings were announced on February 11 after the closing bell.

Check Point Software Technologies (CHKP) exceeded our estimates on both earnings and profits by $2 million and 6 cents, respectively. It expects first-quarter earnings of 99 cents to $1.05 per share on revenue of $395 million to $410 million. The midpoint was well above our earnings estimate of 93 cents but below our revenue estimate of $403 million at the time of the earnings release. For the fiscal year, revenue and earnings are expected to be $1.72 billion to $1.79 billion and $4.45 billion to $4.60, respectively. Both are averaging well above the Zacks Consensus Estimate of $1.75 billion and $4.08, respectively. Shares are up nearly 4.6% since the Jan. 28 earnings announcement before the opening bell (read: ETFs in spotlight amid CyberArk buyout rumors at Check Point).

Fortinet (FTNT) beat our earnings estimates by 6 cents, but beat the same revenues by $1 million. Fortinet expects current third-quarter revenue in the range of $270 million to $275 million and earnings per share of 8 to 9 cents; both metrics averaged below our estimates of $277 million and 9 cents, respectively, at the time of earnings release. In 2016, the company expects revenue to grow more than 24% to $1.25-1.26 billion, with earnings per share of 67-69 cents. The upper end of both projections was above our estimates of $1.24 billion and 23 cents, respectively. Shares fell nearly 8.5% after fourth-quarter earnings were announced on Jan. 28, after the closing bell.

Last but not least, Juniper Networks Inc. (JNPR) it outperformed both the bottom and top charts by 3 cents and $0.22 billion, respectively. For the first quarter, the company expects earnings per share in the range of 42 cents to 46 cents and revenue in the range of $1.15 billion to $1.19 billion. The Zacks Consensus Estimate at the time of the earnings release was pegged at 37 cents for earnings and $1.201 billion for revenues. JNPR shares have fallen nearly 17.7% since the Jan. 27 earnings announcement after the closing bell.

ETFs in the spotlight

The streak of strong earnings was better, but weak stock performance put a spotlight on this niche area of ​​the tech sector in the coming days. There are currently several cybersecurity ETFs that investors can invest in at discounted prices (see all tech ETFs here):

PureFunds ISE Cyber ​​Security ETF (HACK)

The fund offers global exposure to companies that ensure the security of computer hardware, software and networks and fight against all types of abuses in cyberspace. It tracks the ISE Cyber ​​Security Index and has 34 securities in its basket. It is well distributed among its components, as each security holds less than 4.9% of total assets. From an industrial perspective, software and programming make up almost 66% of the portfolio, with communications equipment, IT consulting and data services rounding out the top three.

In terms of country exposure, US companies take first place with 68%, followed by Israel (12%), the Netherlands (6%), Japan (4%), the UK (4%), South Korea (3%). ), Finland (2%) and Canada (1%). The fund has accumulated $636.6 million in AUM and charges investors fees of 75 basis points annually. Volume is solid, with 495,000 shares in hand daily. HACK has lost 17% in the last month.

First Trust NASDAQ CEA Cybersecurity ETF (CIBR)

In the eight months since its debut, this ETF has accumulated over $105 million in its asset base. It charges annual fees of 60 basis points and trades a moderate average daily volume of over 68,000 shares. The fund tracks the Nasdaq CTA Cybersecurity Index, which measures the performance of companies engaged in the cybersecurity segment of the technology and industrial sectors. In total, the product has 34 shares in its basket, with Cisco Systems (CSCO) having the largest market share, amounting to 7.14%, while other companies hold less than 5.7% of assets (read: ETF funds that will allow you to take advantage of optimistic Cisco’s fourth quarter results).

Moreover, this percentage is skewed towards the software industry (46.2%), while communications hardware comes next with a double-digit allocation. Like HACK, US companies account for 69% of CIBR, while the Netherlands, China, Israel and many other countries account for single-digit shares. Over the same period, the ETF lost 13.3%.

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PURFDS-ISE CYBR (HACK): ETF Research Reports

FT-NDQ CYBERSEC (CIBR): ETF Research Reports

CHECK PT SOFTW (CHKP): Free Stock Analysis Report

CYBER-ARK SFTWR (CYBR): Free Stock Analysis Report

FIREEYE INC (FEYE): Free Stock Analysis Report

FORTINET INC (FTNT): Free stock analysis report

JUNIPER NETWRKS (JNPR): Free stock analysis report

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