Value Line has initiated coverage of Infoblox (BLOX) in its flagship product, The Value Line Investment Survey. Infoblox describes itself as the leader in automated network control. The company provides software technology that helps its customers control their networks and guards against outside threats such as malware and cyberattacks. Infoblox has its headquarters in Santa Clara, California, has more than 500 employees, and has operations in 30 countries. The company has more than 6,900 customers worldwide, including most of the top aerospace and defense companies, auto and truck manufacturers, retailers, banks, and telecommunications providers. Various federal government agencies are also Infoblox customers.
Infoblox was incorporated in Illinois in February of 1999 and reincorporated in Delaware in April of 2003. The company had its initial public offering on the New York Stock Exchange in April of 2012. Its fiscal year ends on July 31st.
Cyber threats are becoming more worrisome for any business that relies on computer networks. Running a network is hard enough, and dealing with these threats becomes even more difficult when there are so many interactive devices, such as smart phones, to be concerned with. This is where Infoblox can help. The company offers products that reduce risk, increase visibility, reduce operating expenses, and increase compliance. Infoblox has formed strategic partnerships with Cisco (CSCO – Free Cisco Stock Report), VMware (VMW), Microsoft (MSFT – Free Microsoft Stock Report), and Riverbed (RVBD), which recommend Infoblox to their customers. Infoblox also provides its customers with maintenance and support, consulting, and training.
This stock is not suitable for risk-averse investors. It lost nearly half of its value in mid-February after the company warned investors that top-line growth is slowing. The equity has made a partial recovery since then, but was trading at only about half of its 52-week high in late February.
For the fiscal second quarter that ended January 31, 2014, management reported total net revenues of $60.9 million, below its previous expectation of $65 million-$66 million. This represented a sequential decline compared with the $63.5 million total net revenues that Infoblox booked in the October quarter.
Business in January—particularly from the federal government—didn’t meet the company’s expectation, and it recorded fewer large transactions, as well. Infoblox also lowered its net revenue estimate for the full fiscal year, from $270 million-$276 million to $250 million-$254 million. (Fiscal 2013 net revenues were $225 million.) Naturally, this will also hurt the bottom line. Until then, Infoblox was growing rapidly. The company’s gross margin is typically high, in the upper 70%-lower 80% range. Cash flow is positive, but, due to high stock-compensation expense, the bottom line is in the red.
Infoblox competes with many companies that are much larger, including International Business Machines (IBM – Free IBM Stock Report) and Hewlett-Packard (HPQ). Any company that is involved in technology, especially in rapidly evolving markets, runs the risk that a competitor will introduce better products. And any economic weakness that affects companies’ willingness to spend on IT products and services might well hurt Infoblox. Even before the company’s revenue warning, its foreign business was slowing.
The balance sheet is in good shape. As of January 31, 2014, the company had no debt and $251 million in cash and short-term investments. However, Infoblox pays no dividend, and does not expect to do so anytime soon. Investors should note that, as an emerging growth company, Infoblox does not have to comply with all of the reporting requirements of other public companies, such as an audit of its controls for financial reporting under the Sarbanes-Oxley act.
For a more thorough look at Infoblox, and the particular investment merits of its stock, subscribers should examine our full report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have a position in any of the stocks mentioned.