Today’s profit warning from Corero Network Security (CNS:AIM) is another ugly reminder of how tough it is for small, sub-scale cyber security businesses.
The AIM-listed business provides DDoS protection to clients. In plain English, it is software that alerts against distributed denial of service attacks, the sort of online hacks that shutdown websites and undermine trust among users.
Today the company warned that slower-than expected conversion of its important channel partner deal with Juniper will hit revenues. So instead of ramping up 10% to around $5.5m (Corero reports in dollars) in the first half to 30 June, investors can expect a 16% decline to $4.2m.
This will have no effect on profits because Corero doesn’t make any, running up losses for years and requiring several cash calls to survive.
HALVED AT A STROKE
The news smashed the share price and wiped out nearly half the company’s market value, which now stands at a piddling £13.4m. The share price collapsed 47% to 3.35p.
The company has been so harshly dealt with because it has developed a fairly long record of accidents, including contracts failing to close on time, struggling to get new products off the shelf, and now, converting the new business pipeline.
We have flagged before the challenges and struggles of sub-scale suppliers in the cyber security space, Corero among them. There are undoubted opportunities – internet hacking attacks are becoming more prevalent globally, not less. But it is also a highly competitive industry that appears to suit deep-pocketed specialists rather than small, niche businesses.
Corero is already competing with ‘very well-funded competitors such as NetScout, Arbor, and the DDoS protection suites from majors such as Akamai, Cloudflare, F5, Radware, Imperva and even specialist hardware from the likes of HPE,’ says Megabuyte analyst Indraneel Arampatta.