Check Point revenue growth disappointed investors; The stock is falling

“In the first quarter, we presented double-digit growth in the net profit per share and in the adjusted free flow, alongside a 5% growth in revenues,” said Check Point CEO Nadav Zafarir. He added that subscription revenues remained strong and were supported by strong demand from growing technologies, such as email security and SASE. As for product revenues, they decreased by 2.8% to $111 million, Tzafir said that they were affected by changes made in the go-to-market at the beginning of the quarter, which created “headwinds” in the short term, but added that the company is confident that the changes, together with its leading technology, will lead to the creation of long-term and sustainable value.

Zafarir added that “the world of cyber security is undergoing a fundamental change, because artificial intelligence accelerates both the scope of threats and their sophistication. Our strategy is specially built for such an environment. We are in a good position to benefit from the accelerated demand.”

Check Point’s net profit in the quarter, according to generally accepted accounting rules, was similar to the corresponding quarter, approximately $192 million, and on a non-GAAP basis it reached $265 million – an increase of 7.8% compared to the corresponding quarter. The difference between the two numbers is due to the capital compensation costs that amounted to $59.8 million in the quarter and reductions of purchased intangible assets, amounting to $19.7 million. Net profit per share on a Non-GAAP basis grew by about 13%.

Check Point reported a flow of $445 million from operations in the quarter, a growth of 6%, and at the end of the quarter it had $4.38 billion in cash. The company raised convertible bonds for $1.8 billion net, and during the quarter completed the purchases of Cyata and Cyclops for $92 million net. It also continued to buy back its own shares for $325 million in the quarter.

At the same time, Check Point reported the appointment of Sharif Sadiq as Chief Revenue Officer. Sadik previously held the position of President of Global Sales and will replace Itai Greenberg, who is retiring from the position.

“Full of confidence in our ability to increase market shares”

In a conversation with reporters, CEO Zafarir and CFO Roy Golan elaborated on the changes in Check Point’s sales organization, which created a slowdown in sales of firewall products in the first quarter – a trend that should continue in the second quarter as well.

According to them, the effect is short-term. According to Golan, this is about postponing transactions to the second half of the year, and at the same time the company sees a continuation of the acceleration in subscription revenues, which is its main growth engine. Tzafir said that “despite the short-term effects, we are confident in our ability to increase market shares. Check Point is positioned in a very unique way. Our strategy and our strong financial profile put us in a good position.” Regarding the changes in the sales organization, Zafir said that there is “a movement of people in the sales organization, with the aim of reorganizing it and reaching new customers and large organizations. It slowed down in the first quarter and maybe also in the second quarter, but prepares us well for where we need to go.”

Zafarir added that “in recent weeks, we’ve all been hearing from every direction how AI is a defining moment for the cyber defense industry. There are very deep structural changes that are expanding the market, and the barriers that stood in the past against sophisticated cyber attacks are collapsing.” About Anthropic’s myth model, Zafir said that it is a leap forward, and AI models in general produce a dramatic change, but Check Point has been preparing for this event for a long time. In his estimation, “the coming years will be chaotic in the cyber world. We have a strategy, we know where we want to go and we are building it.”

Referring to the weakness of the dollar, Tzafir said that “it is clear that for an industry that is based on exports, this is a headwind. Specifically at Check Point, we have prepared for it, and we have the financial strength that allows us to deal with it. The world is really changing, and the competition will be for talent that knows how to change. We believe that the best talent in the world in this aspect is in Israel, and we will continue to focus on Israel. The increasing marginal cost in this context (of hiring an Israeli worker, SHV) is In my opinion, not one that makes the ability to reach this talent less attractive. We continue to recruit and grow in Israel.”

Zafir also estimated that the volatility in the market, along with Check Point’s financial strength, may create acquisition opportunities for the company, but emphasized that acquisitions must be consistent with the company’s strategy.

Check Point is traded on Nasdaq according to a market value of 14.6 billion dollars, after a 24.6% drop in the share price since the beginning of the year.