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Solid Q2 Earnings Fail to Lift Cyber Security ETFs

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Though the cyber security industry appears well poised on higher IT spending budgets and increased cybercrimes, strong corporate earnings failed to impress the stocks. This is especially true as most of the stocks suffered even after topping the Zacks Consensus Estimate on both fronts and offering robust guidance (read: Is There a Bubble in FAANG? Buy These Tech ETFs).

Let’s dig into the earnings of some of the cyber security firms that have the largest allocation to the ETFs in this niche area of the technology sector:

Cyber Security Earnings in Focus

Fortinet (FTNT - Free Report) posted earnings per share of 41 cents and revenues of $441.3 million, easily topping the Zacks Consensus Estimate of 35 cents and $424 million, respectively. On a year-over-year basis, earnings increased from 27 cents in the year-ago quarter while revenues were up 21.4%. The company projects revenues in the range of $445–$455 million and earnings per share of 41-43 cents for the ongoing third quarter. For 2018, it raised revenues guidance to $1.770-$1.790 billion from $1.715-$1.735 billion and earnings per share guidance to $1.63-$1.67 from $1.51-$1.55.

CyberArk Software (CYBR - Free Report) outpaced the Zacks Consensus Estimate by 12 cents for earnings per share and $5 million for revenues. Earnings per share shot up 71.4% from the year-ago quarter while revenues jumped 35.2%. The company expects earnings per share of 25-28 cents on revenues of $77.75-$79.25 million for the third quarter. Like its peers, CyberArk also raised estimates for the full year with revenues expected in the range of $320-$324 million and earnings per share in the range of $1.43–$1.50. This is much higher than the previous estimate of $315-$319 million for revenues and $1.31-$1.37 for earnings per share.

Check Point Software Technologies (CHKP - Free Report) reported Q2 earnings per share of $1.37 and revenues of $468 million, outpacing the Zacks Consensus Estimate of $1.31 and $461 million, respectively. On year-over-year basis, earnings grew 8% while revenues were up 2%. For the third quarter of 2018 and full year, the company expects earnings per share in the range of $1.30-$1.40 and $5.45-$5.75, respectively. Revenues are expected in the range of $454-$474 million for the third quarter and $1.85-$1.93 billion for the full year (see: all the Technology ETFs here).

Second-quarter earnings per share at Qualys (QLYS - Free Report) came in at 39 cents, 4 cents ahead of the Zacks Consensus Estimate while revenues of $68.2 million edged past the expectation of $67 million. Earnings were also ahead of 26 cents reported in the year-ago quarter and revenues grew 23% year over year. For the third quarter, Qualys expects revenues of $70.9–$71.5 million and earnings per share of 37-39 cents. For this year, it raised the revenue guidance to $278-$2379.2 million from $276.8-$278.5 million and earnings per share view to $1.46-$1.50 from $1.43-$1.48.

Proofpoint’s (PFPT - Free Report) earnings per share came in at 26 cents, well ahead of the Zacks Consensus Estimate of 17 cents and up 52.9% from the year-ago period. Revenues of $172 million increased 40.5% year over year and outpaced the estimated $170 million. For the third quarter, the company expects revenues in the range of $180-$182 million and earnings per share in the range of 25-29 cents. For the full year, Proofpoint increased its revenue guidance to $705-$709 million from $702-$704 million and earnings per share outlook to $1.12-$1.19 from $1.00-$1.09.

ETFs in Focus

The string of earnings beat and solid outlook failed to excite cyber security ETFs as both ETFs targeting this niche space have shed more than 2.5% each in a month. Below we have highlighted them in detail (read: Buy the Dip With These ETFs & Stocks):

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 50 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 56% 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 81%, followed by United Kingdom (7%), Israel (6%), Japan (5%), the Netherlands (1%), and South Korea (1%). The fund has amassed $1.7 billion in AUM and charges 60 bps in fees per year. Volume is solid as it exchanges nearly 369,000 shares in hand per day.

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

This ETF has accumulated nearly $736.9 million in its asset base and charges 60 bps in annual fees. It trades in moderate average daily volume of around 189,000 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 32 stocks in its basket with the in-focus stocks accounting for more than 3% allocation each (read:  Cheapest ETFs in Focus as Fee War Heats Up).

Further, it is skewed toward the software industry at 53.2% while communications equipment round off the next spot with an 18.7% allocation. Like HACK, American firms account for 82% of CIBR while United Kingdom, Israel, Japan and South Korea make up for a single-digit allocation.

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