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Cyber Security ETFs in Focus on Robust Q2 Earnings

The hype surrounding the cyber security industry has heated up this year given a surging stock market and increased cyberattacks. In fact, many stocks rallied to multi-year highs, suggesting that the industry is thriving. The latest quarterly earnings results bear testimony to this as most of the cyber security firms beat our earnings and revenue estimates, and raised their guidance for the full year (read: Cybersecurity ETFs Set to Rally After a Global Cyberattack).

However, robust earnings failed to drive cybersecurity stocks and ETFs over the past month as the space has been hit by geopolitics lately. Let’s dig into the earnings results of some of the cyber security firms that have the largest allocation to the ETFs in this industry:

Cyber Security Earnings in Focus

Juniper Networks Inc. JNPR reported Q2 earnings per share of 49 cents and revenues of $1.31 billion, outpacing the Zacks Consensus Estimate of 42 cents and $1.28 billion, respectively. For the third quarter, the company expects earnings per share in the range of 55-61 cents and revenues in the range of $1.02-$1.62 billion. Despite robust results, shares of JNPR are down 8.4% since its earnings announcement on July 25 after the closing bell.

Symantec Corporation SYMC beat our earnings estimate but missed on revenues when it reported fiscal first-quarter results on August 2, after the closing bell. Earnings per share came in at 15 cents, above the Zacks Consensus Estimate of 12 cents but revenues of $1.17 billion fell shy of our estimated $1.2 billion. Symantec guided for the fiscal second quarter with revenues of $1.26-$1.29 billion and earnings per share in the range of 40-44 cents. The company raised its projections for the fiscal year. It now expects revenues of $5.16-$5.26 billion and earnings of $1.79-$1.89, up from the previous forecast of $5.10-$5.20 billion and $1.75-$1.85, respectively. However, shares of SYMC have tumbled 9.9% to date following its earnings announcement.

Check Point Software Technologies CHKP topped our estimates for both the top and the bottom lines by $4 million and 3 cents, respectively. It expects earnings per share of $1.18-$1.28 on revenues of $430-$465 million for the third quarter. For the full year, revenues and earnings are expected in the range of $1.85–$1.90 billion and $5.05-$5.25, respectively. The stock has plummeted 9.3% since its earnings announcement on July 20, before the opening bell (see: all the Technology ETFs here).

Second-quarter earnings per share at Qualys QLYS came in at 18 cents, 8 cents ahead of the Zacks Consensus Estimate while revenues of $55 million matched our expectations. For the third quarter, Qualys expects revenues of $58.2–$58.9 million and earnings per share of 21-23 cents. For this year, it raised the revenue guidance to $226.8-$228.3 million from $225-$228 million and the earnings per share outlook to 87-91 cents from 81-86 cents. Shares of QLYS are up 6.7% to date following its earnings announcement on August 2, after the closing bell.

Proofpoint PFPT has shed 3.7% to date following the earnings announcement on July 27, after the closing bell. The company reported a loss per share of 39 cents, wider than the Zacks Consensus Estimate of a loss of 26 cents but revenues outpaced our estimate by a marginal $2 million. For the third quarter, the company expects revenues in the range of $130-$132 million and earnings per share in the range of 16-18 cents. For the full year, Proofpoint increased the revenue guidance to $503-$506 million from $496-$500 million and earnings per share outlook to 62-64 cents from $56-59 cents.

ETFs in Focus

The string of earnings beat and solid outlook have put this niche area of the technology sector in focus for the days ahead. Currently, there are a couple of cyber security ETFs on investors’ radar:

ETFMG Prime Cyber Security ETF HACK

The fund provides global exposure to the cybersecurity industry comprising companies that offer hardware, software, consulting and services to defend against cybercrime. It tracks the Prime Cyber Defense Index, holding 40 securities in its basket. It is well spread out across components with the in-focus five firms accounting for the top 10 holdings with over 3.5% share each. From an industrial look, software and programming accounts for nearly 58% of the portfolio while communication equipment and internet & mobile applications round off the top three.

In terms of country exposure, U.S. firms take the top spot at 75%, followed by Israel (9%), United Kingdom (7%), Japan (4%), South Korea (2%), and the Netherlands (2%). The fund has amassed $1.1 billion in AUM and charges 60 bps in fees per year. Volume is solid as it exchanges 378,000 shares in hand per day. HACK has lost 5.9% over the past month (read: Petya Malice Spilling Over: Buy Cybersecurity Stocks & ETFs).

First Trust NASDAQ CEA Cybersecurity ETF CIBR

This ETF has accumulated nearly $275.7 million in its asset base and charges 60 bps in annual fees. It trades in moderate average daily volume of around 95,000 shares. The fund follows the Nasdaq CTA Cybersecurity Index, which measures the performance of companies engaged in the cyber security segment of the technology and industrials sectors. In total, the product holds 30 stocks in its basket with the in-focus five firms accounting for 21.2% allocation.

Further, it is skewed toward the software industry at 48.3% while communications equipment round off the next spot with a 23.5% allocation. Like HACK, American firms account for 76% of CIBR while Israel, United Kingdom, Ireland and many others make up for a single-digit allocation. The ETF has shed 5.1% in the same period.

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Qualys, Inc. (QLYS): Free Stock Analysis Report
 
Juniper Networks, Inc. (JNPR): Free Stock Analysis Report
 
Check Point Software Technologies Ltd. (CHKP): Free Stock Analysis Report
 
Symantec Corporation (SYMC): Free Stock Analysis Report
 
Proofpoint, Inc. (PFPT): Free Stock Analysis Report
 
PURFDS-ISE CYBR (HACK): ETF Research Reports
 
FT-NDQ CYBERSEC (CIBR): ETF Research Reports
 
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