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Allot is in talks with multiple US telecom operators for security deals as COVID-19 has accelerated the demand for network-based protection for the consumer market, CEO Erez Antebi told TipRanks in an interview.
Antebi, however, makes it clear COVID-19 is only that, an accelerator, and notes “the idea did not start with COVID, and hopefully COVID will go away, but it won’t end with COVID.”
With people all over the world spending more time at home and working remotely amid the coronavirus pandemic, the number of phishing attacks and cyberthreats has spiked, and thus, the need for a secure connection has also become more crucial than ever. According to Allot’s latest Europe cyberthreat report, phishing attacks in 2020 surged an average of 718% from the prior year.
This is where Allot (ALLT) comes in by offering a technology designed to provide cybersecurity to the mass market, that is, to consumers and small businesses.
“Most large security companies, like Check Point (CHKP), Palo Alto (PANW), they don’t work with telecom operators. They tend to work with businesses, enterprises. In that sense, we bring something more different,” according to Antebi, who spoke to TipRanks from the company’s office in Hod Hasharon, Israel.
Allot’s technology allows telecom operators to offer their customers Security as a Service, which is included as part of their network package offerings, including internet deals. The idea is that telecom operators can offer holistic cyberthreat protection through centralized cloud management, which views customers as households and seeks to protect its members from phishing attempts, malware, and viruses, across all of their devices regardless of where they are.
“What we are seeing now compared to a year ago is that multiple US operators are interested in network-based security for the consumer market. This was not the case a year ago. This is a change in the market,” Antebi said. “We are in discussions with several North American telecom operators on this.”
Antebi is also seeing potential for security deals in Europe, where Allot has already partnered with Vodafone, as well as in the Asia Pacific. Additionally, the company is planning to invest in technology development. For this year, Allot increased its guidance for OpEx to $110 million-$111 million from the $100 million allocated in 2020.
“The other piece of investment is hardware, professional services which we provide for the telecom operators. This is an expense for us, an investment, which will bring in the revenues later,” Antebi said. “I think the correct strategy for us is to take advantage of the fact that this market is happening now and to grow as much as we can, as much as possible, even at the price of not necessarily being profitable in the short-term.”
For this year, Allot expects to generate $6 million-$8 million in recurring revenue from security deals, and $25 million in 2022. In a bullish signal, Needham analyst Alex Henderson estimates that the company’s security business looks poised to bring in more than $50 million in revenue in 2023.
Furthermore, Henderson believes that 2021 could mark an “inflection year” for Allot, and one during which already expected security deals are set to become the primary drivers of growth.
“Allot has a strong new business providing Service Providers the ability to offer their customers Security as a Service, which is ramping into a major opportunity. We expect the transition to a partial SaaS model to improve Allot's leverage and cash flow generation,” the analyst wrote in a note to investors.
Henderson’s Buy rating on ALLT comes with a $22 price target, which he just raised from $15, indicating his confidence in an additional 45% upside potential for the stock over the next 12 months. That’s after shares already returned a stellar 43% to investors so far this year. (See Allot stock analysis on TipRanks)
The other recent Allot reviewer, Merrill Lynch analyst Tal Liani, agrees with Henderson on the Buy rating but set a $19 price target. This makes the consensus rating a Moderate Buy, with an average analyst price target of $20.50 (35% upside potential).
According to Allot’s cyberthreat report, phishing continues to represent the predominant threat to European users, while Adware appears to be the second-most pervasive threat type, making up about 28% of all threats blocked in Europe.
“There is a whole new world out there of criminals that simply are able to extract more money from us whether it is ransomware or stealing our identity. That’s just growing all the time,” Allot’s Antebi said. “We are not going to stop using the internet after COVID. Same thing about cyberthreats. Our business will continue to grow.”