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Cyber Security ETFs Outperforming on Solid Q1 Earnings

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Amid market volatility, the cyber security industry is riding high on better-than-expected earnings results, pushing many stocks to multi-year highs. This is especially true as most of the cyber security firms beat the Zacks Consensus Estimate on both earnings and revenues and offered robust guidance.

Let’s dig into the earnings results of some of the cyber security firms that have the largest allocation to the ETFs in this niche area of the technology sector (read: 5 Niche Tech ETFs Hitting All-Time Highs):

Cyber Security Earnings in Focus

Akamai Technologies (AKAM - Free Report) reported Q1 earnings per share of 79 cents and revenues of $669 million, outpacing the Zacks Consensus Estimate of 70 cents and $654 million, respectively. On year-over-year basis, earnings surged 21.3% while revenues were up 11.4%. For the second quarter of 2018 and full year, the company expects earnings per share in the range of 79-83 cents and $3.15-$3.25, respectively. Revenues are expected in the range of $658-$670 million for the second quarter and $2.69-$2.72 billion for the full year.

Proofpoint (PFPT - Free Report) earnings per share came in at 30 cents, well ahead of the Zacks Consensus Estimate of 16 cents and up 36% from the year-ago period. Revenues of $162 million increased 40.5% year over year and outpaced the estimated $151 million. For the second quarter, the company expects revenues in the range of $168-$170 million and earnings per share in the range of 15-17 cents. For the full year, Proofpoint increased its revenue guidance to $702-$706 million from $691-$696 million and earnings per share outlook to $1.00-$1.09 from 84-$91 cents.

Fortinet (FTNT - Free Report) posted earnings per share of 33 cents and revenues of $399 million, easily topping the Zacks Consensus Estimate of 24 cents and $390 million, respectively. On year-over-year basis, earnings increased from 17 cents in the year-ago quarter while revenues were up 17.1%. The company projects revenues in the range of $420–$430 million and earnings per share of 34-36 cents for the ongoing second quarter. For 2018, it raised revenues guidance $1.715-$1.735 billion from $1.695-$1.715 billion and earnings per share guidance to $1.51-$1.55 from $1.30-$1.32 (see: all the Technology ETFs here).

FireEye’s (FEYE - Free Report) loss of 4 cents per share matched the Zacks Consensus Estimate and was narrower than the year-ago quarter’s loss of 5 cents. Revenues climbed 7.7% year over year to $199.1 million, edging past the estimated $194 million. FireEye expects revenues of $199-$203 million and loss per share of 3 cents to breakeven earnings for the second quarter. For the full year, the company raised revenue guidance to $820-$830 million from $815-$825 million and earnings per share guidance to breakeven to 4 cents.

CyberArk Software (CYBR - Free Report) outpaced the Zacks Consensus Estimate by 11 cents for earnings per share and $2 million for revenues. Earnings per share increased 14.3% from the year-ago quarter while revenues jumped 22%. The company expects earnings per share of 23-25 cents on revenues of $72-$73.5 million for the second quarter. Like its peers, CyberArk also raised estimates for the full year with revenues in the range of $315-$319 million and earnings per share of $1.31-$1.37. This is much higher than the previous estimate of $312-$316 million for revenues and $1.18-$1.24 for earnings per share.

ETFs in Focus

The string of earnings beat and solid outlook have given an additional boost in the two already surging cyber security ETFs. Below we have highlighted them in detail:

ETFMG Prime Cyber Security ETF (HACK - Free Report)

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 47 securities in its basket. It is well spread out across components with the in-focus five firms accounting for at least 4% share each. From an industrial look, software and programming accounts for nearly 59% of the portfolio while communication equipment, Internet & mobile applications and IT consulting & data services round off the next three.

In terms of country exposure, U.S. firms take the top spot at 80%, followed by United Kingdom (8%), Japan (6%), Israel (5%), the Netherlands (1%), and South Korea (1%). The fund has amassed $1.5 billion in AUM and charges 60 bps in fees per year. Volume is solid as it exchanges nearly 308,000 shares in hand per day. The ETF has surged 17.5% in the year-to-date time frame (read: Why Cybersecurity ETFs are Soaring This Year).

First Trust NASDAQ CEA Cybersecurity ETF (CIBR - Free Report)

This ETF has accumulated nearly $614.9 million in its asset base and charges 60 bps in annual fees. It trades in moderate average daily volume of around 143,000 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 33 stocks in its basket with Akamai Technologies making up for 6.3% allocation while the other in-focus firms accounting for more than 3% allocation each.

Further, it is skewed toward the software industry at 51.4% while communications equipment round off the next spot with a 19.1% allocation. Like HACK, American firms account for 80% of CIBR while United Kingdom, Israel, Japan and many others make up for a single-digit allocation. CIBR is up 14.6% so far this year.

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