A10 Networks Ought to Be A ten Greenback Inventory (NYSE:ATEN)

The inventory of A10 Networks (ATEN) has been left within the mud by its friends resulting from comparatively flat income progress over the previous few years and a relentless stream of quarterly losses. Nonetheless, led by new award-winning denial-of-service and cloud safety merchandise, the corporate has a revitalized product line and has just lately begun to concentrate on cost-cutting and profitability. Within the meantime, the corporate has wonderful alternatives as a result of progress trajectory of the cloud, 5G, and the internet-of-things (“IoT”) markets – which, in some ways, all converge and funnel into A10’s options. Together, these developments seem to make A10 one of many few bargains within the sector.

A10 supplies business-critical purposes to service suppliers and enterprises which can be safe, out there throughout peak demand, and allow environment friendly entry to cloud or multi-cloud assets. As the emblem above advertises: “At all times Safe. At all times Accessible.” The inventory has been stagnant for the previous couple of years as a result of income progress has been flat over the previous few years.


The corporate launched its Q2 EPS Report on July 28. Income progress over the primary six months of 2020 was solely 6.8%. Nonetheless, gross sales and advertising and marketing bills dropped ~$9 million, which led to a 15.4% drop in total working bills ($14.36 million) over the primary 6 months of 2020 in comparison with the same interval in 2019. Diminished working bills, mixed with lowered G&A and decrease curiosity expense, resulted in a Q2 swing from a lack of $0.08/share in 2019 to a revenue of $0.05/share in 2020.

The transition from accelerating income progress to quick earnings progress may be seen extra simply from the bar graphs under:

Supply: Q2 Presentation

Dhrupad Trivedi, President and CEO of A10 Networks, stated:

A10 continues to make progress on our enterprise mannequin transformation, leading to improved earnings energy, amidst an unsure surroundings. Thus far, we now have efficiently navigated the challenges associated to the pandemic and related financial disruptions. Demand stays robust, although gross sales cycles, notably in Asia, have been elongated. More and more, our international footprint and buyer combine function vital and sturdy aggressive benefits. We have been capable of offset income declines from Japan and Asia Pacific areas with enhancements from North America and EMEA. We keep a robust market place with service suppliers and their funding cycles which might final a number of years and lead to variable demand ranges inside a 90-day interval. We proceed to concentrate on execution and effectivity to maximise profitability whereas investing in innovation for our clients.

A10 has a robust steadiness sheet: $143.4 million in money and marketable securities (an estimated $1.79/share) and no debt.

Going Ahead

A10 has a pair new merchandise which can be making waves within the data safety market. The brand new Thunder ADC (utility supply controller) supplies multi-cloud server load-balancing and safety, whereas the brand new Lightning ADC product runs as a native-cloud SaaS utility that accelerates supply and secures purposes and companies. The Thunder merchandise helped A10 win two InfoSec 2020 awards, which have been introduced on the RSA convention:

Firm/Winner Award Class Class
A10 Networks Market Chief

AI/ML DDoS Safety

A10 Networks Finest Product Multi-Cloud Safety

The AI/ML (Synthetic Intelligence/Machine Studying) DDoS Safety award was for A10’s Thunder TPS (risk safety service) product. DDos (distributed-denial-of-service) is an rising and severe enterprise danger. The Finest Product award in Multi-Cloud Safety was for A10’s Thunder ADC product.

These new forefront merchandise bode effectively for A10’s future, and are one purpose the corporate supplies options for 9 of the top-10 telecom firms, 8 of the top-10 cloud suppliers, and 21 of the top-50 International Fortune 500 (see slide 5).

In June, A10 announced a partnership with Dell to speed up its go-to-market technique by offering turnkey OEM utility supply and safety options. This partnership with Dell will assist A10 get its main merchandise out into the market in a cost-efficient and faster method whereas serving to Dell present its clients with the safety and efficiency options they require. It is a win-win for each firms.

In the meantime, 5G deployment, the proliferation of IoT units, and the COVID-19 induced acceleration of the shift to the cloud, are all optimistic tailwinds for merchandise that speed up efficiency whereas securing networks and the info, which is precisely what A10’s merchandise do.

Share Buyback

Final week A10 announced a optimistic Q3 replace and a $50 million inventory buyback plan. All issues being equal, when completed the buyback plan would nonetheless depart the corporate with over $90 million in money, whereas – at $7/share – would cut back the excellent share rely by ~7 million shares, or nearly 9%. That is a big sufficient discount within the share rely and will meaningfully enhance per share earnings going ahead.

Within the press launch, CEO Trivedi stated:

A10 has continued to drive natural progress in a difficult surroundings, whereas lowering working bills, enabling us to generate sustainable money movement. The transition to 5-G continues to symbolize an vital catalyst to our enterprise, and thus far, we consider we now have efficiently navigated COVID-19-related challenges. We’re assured that we will generate continued enhancements in our working outcomes as we speed up our enterprise transformation, and in consequence, the board has licensed a buyback program.


As famous beforehand, A10 has only in the near past transitioned from posting quarterly losses to optimistic web earnings. In consequence, it isn’t stunning that the TTM P/E=116 though the inventory closed Tuesday at $7.09. Nonetheless, notice that Searching for Alpha estimates the ahead P/E=19.4. A10’s market cap is $553 million. Doubling A10’s first 6 months 2020 revenues will get ~$212 million, which implies A10 is buying and selling at an estimated 2.6x annual gross sales. For an organization that at present has an estimated $1.79/share in money, and trades at ~$7/share, that’s a particularly low a number of compared to many different SaaS firms. Word that ANSYS (ANSS) trades at an astonishing 56.5x 2019 income (see Ansys: Simulating Its Way To An Astonishing Valuation), whereas Synopsys (SNPS) trades at 8.5x gross sales and Everbridge (EVBG) is valued at ~8.4x income (see Everbridge’s Critical Alert Platform Is Benefiting from COVID-19).

At $10 per share, A10’s market cap could be an estimated ~$785 million and would equate to three.7x annual gross sales. That is nonetheless a discount, particularly given the corporate’s forefront merchandise, its massive money place, the significant inventory buyback plan, and the corporate’s rising concentrate on effectivity and profitability. If the corporate can leverage its new award-winning merchandise into vital income progress, clearly the valuation a number of would develop like a number of the different firms talked about, and the inventory value would then replicate upside in each earnings and valuation. And that appears to be the case given the current and bullish Q3 replace offered within the inventory buyback press launch talked about earlier. Which implies the $10 goal, if something, might become fairly conservative.


The primary danger for A10 seems to be its means to develop the income base, which has stagnated over the previous three years. That’s seemingly the first purpose for the corporate’s very low valuation. Nonetheless, with an up to date product portfolio (which is profitable trade safety and efficiency awards), and now its new market penetration technique as exemplified by the OEM partnership with Dell, the corporate seems to be in a wonderful place to develop gross sales given the tailwinds of 5G, the cloud, and the proliferation of IoT.

That stated – and as identified earlier – regardless of COVID-19 headwinds, the corporate did enhance income by practically 7% over the primary 6 months of this yr as in comparison with 2019.

Worst case the corporate would not develop income in any respect. Wanting on the Q2 outcomes, that suggests ~$0.20/share in annual earnings (pre-buyback) or a P/E=35. Which whereas nonetheless excessive from a common market perspective, is cheap for a SaaS-based mannequin with recurring income, robust margins, no debt, massive money place, and free-cash-flow technology.

Word Zack has just lately upgraded A10 to Robust Purchase noting the corporate’s $0.37/share consensus EPS estimate, which means a ahead P/E=19, in step with Searching for Alpha’s present ahead P/E estimate.

Upside danger contains extra market acceptance of A10’s forefront merchandise. That will result in vital income progress, a lot of which can fall to the underside line given the corporate’s new-found concentrate on profitability.

Abstract & Conclusion

A10 seems to be a uncommon exception of an under-valued {hardware} and SaaS-based firm. The corporate’s new award-winning merchandise bode effectively for the longer term, and sure would have propelled extra income progress over the primary 6 months of the yr had it not been for the influence of COVID-19. A10’s excessive money place, significant inventory buyback plan, and the corporate’s current concentrate on chopping prices and profitability bode effectively for the inventory – which may simply achieve 40% over the following yr to $10. ATEN is a “A ten” greenback inventory, and a Purchase.

Disclosure: I/we now have no positions in any shares talked about, and no plans to provoke any positions throughout the subsequent 72 hours. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Searching for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.

Extra disclosure: I’m an engineer, not a CFA. The knowledge and information introduced on this article have been obtained from firm paperwork and/or sources believed to be dependable, however haven’t been independently verified. Subsequently, the creator can not assure their accuracy. Please do your individual analysis and call a professional funding advisor. I’m not liable for the funding selections you make.

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