Want CNET to notify you of price drops and the latest stories?

Check Point beats profit target

The security software company beats Wall Street earnings expectations, but revenue falls short, leading investors to drive down the company's stock.

Robert Lemos Staff Writer, CNET News.com
Robert Lemos
covers viruses, worms and other security threats.
Robert Lemos
2 min read
Security company Check Point Software Technologies beat Wall Street earnings expectations Tuesday, but revenue fell short, leading investors to drive down the company's stock.

The company announced that its net income grew 140 percent year over year to $83.7 million in the first quarter, or 32 cents a share. Analyst polled by First Call expected an average of 29 cents a share. Revenue for the quarter reached $145 million, an 86 percent increase.

"I think our growth rate for this quarter was exceptional," said Gil Shwed, CEO of the Ramat-Gan, Israel-based maker of firewall and encrypted-communications software. "We are on top of all of our internal plans for revenues and ahead of them in terms of earnings. So we are very pleased with our results."

But the company's revenue fell short of most investor expectations, said Dane Lewis, analyst with Robertson Stephens, who had pegged the company's revenue at $150 million. That shortfall, plus slowing growth in outstanding sales, has Lewis worried that the economic slump has reached the security market.

"Both those trends are alarming," he said. "The stock had a nice little run, and now people are selling off to reflect what is a more sober view."

Check Point shares were down $10.09, or 14 percent, to $62.30 in midday trading.

Check Point's predictions for the future seem to support a slowdown.

While analysts had forecast annual revenue of about $660 million, according to First Call, the company stressed that it only expects to see a 50 percent increase, or about $640 million, this year.

"The market did acknowledge this quarter the fact that security has been and remains a critical piece of IT investment and high on the priority list for 2001," Shwed said. "Having said that, it is also important to note that market conditions in the U.S. IT market have changed and are presenting challenges for the entire industry. And Check Point is not an exception here.

"We have seen that we have to work harder to generate this revenue," he said.

The Americas accounted for about 46 percent of the company's revenue in the first quarter, said Jerry Ungerman, executive vice president at Check Point.

Sales in both Europe and Japan continued to be strong, Ungerman said.

In March, Check Point unveiled pieces of its next-generation Internet security technology that would allow hardware acceleration of key functions of its software.