Check Point q2 earnings beat profit estimates, revenue misses

Check Point q2 earnings gave investors a split read on the cybersecurity vendor: adjusted profit topped Wall Street’s estimate, but revenue came in slightly below expectations. Shares of Check Point Software Technologies Ltd. closed down 8.2% after the company reported results for the quarter ended June 30.

The company reported $260 million in adjusted operating income. Adjusted earnings were $2.55 per share, which was 10 cents ahead of the estimate from analysts polled by Zacks, according to the company’s earnings materials and market data cited by Yahoo Finance. Check Point said a modest decline in gross margin was tied to higher memory chip costs, but that pressure did not stop the earnings beat.

Revenue was the weaker part of the report. Check Point generated $674 million in sales for the quarter, $1 million below the midpoint of its own guidance and slightly under the analyst consensus estimate.

Why did Check Point stock fall after Q2 earnings?

The stock reaction centered on the revenue miss and weakness in Check Point’s product business, which includes physical firewall appliances and other offerings sold outside a subscription model. Product revenue fell 14% from a year earlier, according to the company’s investor presentation.

Check Point attributed part of that decline to customers delaying several large firewall appliance purchases until the fourth quarter. The company said it expects the product segment to return to growth in the final quarter of the year. That forecast puts more weight on year-end enterprise buying activity, which is less comforting than already-booked revenue.

The product decline also underlines the transition facing established security vendors. Appliance refresh cycles can still move quarterly results, even as investors give more credit to recurring software revenue and platform expansion.

Subscriptions offset some of the firewall weakness

Check Point’s subscription business performed better. Subscription revenue rose 12% year over year to $333 million, and the company said the segment’s growth rate improved by 2% over the past year.

The company pointed to email security, continuous threat exposure management and AI security products as the main contributors. Those lines delivered more than 40% annualized revenue growth, according to Check Point. Its CTEM software is used to identify and address vulnerabilities across customer infrastructure, while its AI security products are designed to block risks such as prompt injection attacks.

Alongside the earnings report, Check Point introduced a new version of its firewall software that includes what it calls an AI Network Firewall. The company said the tool can catalog AI tools used by employees and block threats such as malicious prompts. As with most AI security positioning, the company did not provide customer adoption figures for the new tool.

Chief Executive Nadav Zafrir said Check Point’s sales execution is improving and that the company is expanding sales capacity to pursue a larger market opportunity.

What did Check Point forecast next?

For the current quarter, Check Point guided for revenue between $655 million and $685 million. The company expects subscription deals to represent roughly half of that revenue.

For the full year, Check Point forecast revenue of $2.77 billion to $2.85 billion. It expects adjusted earnings of $10.45 per share at the midpoint. The guidance gives the company room to recover delayed appliance sales later in the year, but the second-quarter report showed that its recurring software momentum is still being weighed against slower hardware-linked demand.

This story draws on original reporting from SiliconANGLE.