Websense: Staving off attacks
Websense (Nasdaq:WBSN) has been able to weather the market’s recent storm.
The San Diego-based company was founded in 1994 as NetPartners Internet Solutions, a reseller of computer security products. The organization changed its name to Websense in 1999 and had an IPO the following year.
Today it provides Web filtering solutions as well as Web and desktop software to a global base of clients. These solutions allow clients to protect confidential information from external Web-based attacks, such as spyware and phishing. They also enable Websense clients to track and manage how their employees utilize the Internet.
Websense divides its portfolio of offerings into three separate product lines. Its Web security product line focuses on helping companies to manage employees' use of the Internet by filtering access to websites and providing options for identifying risks associated with employee Internet usage. The data security product line assists clients in protecting confidential information from internal threats such as employee error or undetected malicious code. Websense’s messaging security products include email filtering solutions that provide protection from spam and viruses.
A major change to the business structure of Websense occurred in October of last year when the company completed the acquisition of one of its biggest competitors, SurfControl. This transaction served to bolster Websense’s email security software and hosted Web and email security solution offerings.
In July, the company reported its second-quarter results that included revenue of $73 million versus $50.4 million in the second quarter of 2007. Embedded in this amount was approximately $19 million from new or renewal SurfControl subscriptions and revenue recognized from the deferred revenue acquired from SurfControl. Websense checked in with a net loss of $8.2 million, or $0.18 per diluted share, for the second quarter of 2008. In the second quarter of 2007, the company posted net income of $2.1 million, or $0.05 per diluted share. This shift reflects an increase in operating expenses, of which $18.6 million was due to the amortization of acquired intangibles associated with the acquisition of SurfControl's.
Philip Rueppel, a senior analyst for Wachovia, sees there being more room for Websense to grow in future quarters. “Websense has successfully expanded the domain of its core content filtering products to embrace Web security, a potentially much larger market,” he wrote in a July 29th research report. “The company is also targeting the mid-market, a customer segment that has traditionally been slow to install content filtering software, but may be more price-sensitive.”
Year to date, Websense has seen its stock appreciate 32.1%. Such a feat is particularly impressive in light of the 8.7% decline in the S&P 600 SmallCap Index.
Going forward it will be interesting to see if this small-cap company will be able to maintain its momentum in a time when many other small caps are reeling. Fortunately, Websense has an expanding portfolio of products coupled with a diverse revenue base, where international sales accounted for 43% of the company’s total revenue in 2007. Taken together, these factors should go a long way in fending off any immediate threats.
About the Author
Billy Fisher is a certified public accountant and and freelance investment writer whose work has appeared in Investor's Business Daily and The Motley Fool.
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