Shares of SecureWorks Corp. (NASDAQ: SCWX) surged double digits on Thursday after reporting quarterly earnings and revenue that were higher than expected. The IT security firm posted a narrow quarterly loss, raising optimism that it was on a path to profitability.

 

Q2 Earnings Update

  • Earnings: -$0.01
  • Revenue: $136.61 million

In its fiscal second quarter ended Aug. 2, SecureWorks reported a net loss of $10.3 million on revenues of $136.61 million. Net loss per share amounted to $0.13 and $0.01 in non-GAAP terms. The non-GAAP earnings and revenue numbers were both better than expected.

Year-over-year, revenues climbed 6.1%. SecureWorks posted a 26.7% increase in international sales.

Although the company hasn’t been profitable since going public, losses have generally been contained. Revenues have increased every year since 2016 when it raised $112 million in an initial public offering.

Michael Cote, SecureWorks’ CEO, said his company is undergoing a “strategic transition” to become the “SOC of the future.” In the cyber world, SOC refers to an information security operations centre.

“The ‘SOC of the future’ demands a leap forward in capabilities made possible through software-driven solutions that leverage the speed and scale of machine learning, crowd-sourced threat intelligence and incident response insights to provide visibility across a customer’s environment, real-time collaboration with experts and smarter automation,” he said.

 

SCWX Surges

SecureWorks Share Price YTD - Sep 6 2019

Source: Yahoo Finance

Year-to-date, SCWX has been a huge disappointment. The stock is down over 13% in 2019, vastly underperforming the S&P 500’s information technology index.

SecureWorks’ stock price surged on Thursday, as investors rallied behind the upbeat earnings call. SCWX peaked at $14.46 in New York trading for a gain of more than 15%. The stock is now trading at its highest level in over two months.

The stock closed at $14.04, having gained 14.7%.

Year-to-date, SCWX has been a huge disappointment. The stock is down over 13% in 2019, vastly underperforming the S&P 500’s information technology index, which has gained 28% since Jan. 1.

At current values, SecureWorks has a total market capitalization of more than $1.1 billion. By definition, SCWX is a small-cap stock and will likely remain so for the foreseeable future.

SCWX had a disappointing debut back in April 2016, which reflected a battered U.S. technology IPO market at the time. The stock’s price has risen little since debuting more than three years ago, but is down 40% from the January high.

 

Conclusion

SecureWorks is another fast-growing technology company generating ample revenues over its short history. But Wall Street has made it abundantly clear that it does not value cash-burning tech firms that can’t generate profit. In this environment, demand for SCWX could remain subdued for some time.

Disclaimer: Author holds no investment position in SecureWorks at the time of writing.

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