Some information security companies are more successful and some are less so. Check Point belongs in the first category, and Aladdin Knowledge Systems (ALDN) in the second. Aladdin yesterday published disappointing financial results, at least for investors, who punished the share by pushing it down 13% to $11.8, reflecting a company value of $133 million. In March of this year, the share traded at $44.7, reflecting a company value of more than $500 million.
However, the share plunged even faster than the market average, and the reason came to light today. The financial results indicate that Aladdin has not managed to take off and grow at a speed befitting a high-tech company operating in such a hot market. Aladdin's revenues shrunk 10% compared to the previous quarter to 'only' $10.7 million. The company also posted an insignificant increase in revenues over the corresponding quarter of last year.
Aladdin CEO Yanki Margalit attributes the fall in sales mainly to a slump in traditional information security software products. He claims, however, that the sales of new products, which are on the rise, indicate that the company has a bright future.
But Aladdin has turned out to be a disappointment not only in terms of revenues growth, but also in terms of profit. After years of profit making, the company posted a first loss, amounting to $180,000. Although this is not a giant loss, it is still bad news for the company, and may be a foretaste of things to come. Aladdin's administrative, general, sales and marketing expenses increased by $700,000 compared to Q1, due to its intensified marketing drive. R&D expenses were still high, at least compared to sales, at $2.3 million. At the same time, these expenses fell 9% compared to Q1. Margalit says that the company's considerable investment in new product R&D has yet to be reflected in its revenues, which is why it posted a loss. He added that "given the present pace of growth in new product sales, we'll return to profit as soon as Q4 2000." This means that the company will post a loss in Q3 as well.
Aladdin, which employs more than 300 staff around the world, started out as a company specializing in the development of solutions for preventing software piracy, used by software houses. AT the end of 1998, the company turned to Internet security, and acquired Israeli company Eliashim for $20 million. Eliashim developed a product called Esafe, produced in different versions, that protects users from break-ins, hostile applets and viruses transmitted over the Internet. In fact, Aladdin provides a broad range of information security solutions. Its products include HASP and Hardlock - traditional hardware products for preventing the operation of copied software and computer applications - Privilege, software for licensing and distributing software over the Internet, and eToken, an electronic protection key featuring access passwords assuring access for authorized users only.
Aladdin has eight offices and 50 distributors around the world, and customers in more than 100 countries.
Published by Israel's Business Arena on 3 August, 2000