When it comes to Wall Street valuing companies, share prices are often imperfect representations of a company’s performance – even more so in low-float companies where small trades can induce significant change. That appears to be the case with Safe-T Group Ltd. (NASDAQ, TASE: SFET), a global provider of cyber-security and privacy solutions to consumers and enterprises. Of course, calling the SFET share price imperfect needs supporting evidence. Fortunately, SFET provides plenty.
Last month, the company reported what many in the current economic client can’t: record-setting profits. In fact, its Q3 earnings were more than record-setting; they showed that SFET is in hypergrowth. Specifically, revenues for the three months that ended September 30, 2022, scored a record $4,812,000, an increase of 42% compared to last year. Growth was even more substantial on a nine-month comparison, with SFET posting a record level of $13,610,000, an increase of 109% from the same period in 2021. By the way, both of these measures exceeded guidance.
Top-line growth isn’t the only number that should be earning investors’ attention, however, as SFET’s bottom line numbers are equally impressive. There, gross profit for the nine months surged by 143% to $7,360,000 over last year’s comparable. For the three months ending September 30, gross profit scored $2,627,000, 47% higher than the previous year’s period. The even better news is that investors should expect the bullish momentum behind SFET’s growth to continue, a product of operating expense reductions that already resulted in a 25% reduction in net loss and a 30% decrease in Adjusted EBITDA Loss in Q3 compared to the second quarter of 2022. That shows what investors like to see: consecutive quarterly improvements.
Video Link: https://www.youtube.com/embed/7fQeDbO2B80
Low-Float, High Growth…An Excellent Combination
Another data point investors are sure to appreciate is that SFET’s privacy solutions for enterprises business reached break-even operating results, which undoubtedly sets the stage for bottom-line appreciation in the coming quarters. Pressure on shares during what’s been a challenging two years for equities did result in a 1:10 split. However, with only about 3.26 million shares outstanding post-transaction, the stock is now better to rally on expected news. And with least two analysts covering SFET stock and a median price target of $5.50, that’s the expectation.
That makes sense. SFET is indeed in the right markets at the right time, with three distinct business segments targeting significant revenue-generating opportunities from consumer cyber-security and privacy solutions, enterprise privacy solutions, and enterprise cyber-security solutions. Each of these present potentially lucrative opportunities in both niche and mainstream applications.
SFET’s cyber-security and privacy solutions for consumers are innovative and timely, providing a vast security blanket against ransomware, viruses, phishing, and other online threats. It utilizes a powerful, secure, and encrypted connection that masks users’ online activity, keeping them safe from hackers. From a sales perspective, the excellent news is that these solutions target a broad user market, with features designed to protect both advanced and basic users from threats inherent to the digital age.
Another segment, its “privacy solutions” for enterprises, is based on SFET’s fastest, most advanced, and secure proxy network that enables its customers to use a unique hybrid network to collect data anonymously at any scale from any public sources over the web. The network comprises exit points based on its proprietary reflection technology and hundreds of servers at its ISP partners worldwide. In addition, the infrastructure is optimally designed to guarantee the service’s privacy, quality, stability, and speed. There’s another value driver.
SFET’s cyber-security solutions for enterprises, designed for cloud, on-premises, and hybrid networks, mitigate attacks on enterprises’ business-critical services and sensitive data while ensuring uninterrupted business continuity. From outside the organization or within, organizational data access, storage, and exchange use cases are secured according to the “validate first, access later” philosophy of Safe-T’s zero trust. Its ZoneZero® solutions are available through its reseller, TerraZone Ltd., a global information security provider, as a solution or cloud service.
The combined contributions have led to appreciable growth.
Consecutive Record-Setting Growth
SFET posted another set of impressive quarterly numbers, contributing to its aggregating seven consecutive quarters of revenue growth. Keep in mind that growth has been accumulated through some of the most turbulent times of business history, as pandemic-related issues stymied economies and global corporate spending. Despite that, SFET maintained its consistent operational progress, financed its operations, and supported growth through a non-dilutive credit line from a leading Israeli bank and a strategic revenue-share model financing from an industry expert.
Much of the funding came through a unique arrangement, with banks and strategic investors buying into SFET’s strengths. Following their own validations, both concluded that investing in the purchase of consumers (a future asset being customers) could generate a consistent, leveraged, and high return on investment. Those fundings were put to excellent use, allowing SFET to invest $1.2 million in customer acquisition and already return 20% of the investment.
The better news going forward is that, as guided, SFET management believes the funding/investment model can generate millions in future revenues. Those added revenues should benefit investors, considering that shares should already be trading higher based on a revenue multiple today.
A Bullish Home Stretch In 2022 And All Of 2023
Heading into the final stretch of 2022, it’s fair to say that SFET is better positioned than ever for near and long-term growth. Remember, they have momentum at their back after its enterprise privacy business turned profitable and scored three months of record-setting numbers. In addition, its cybersecurity segment, which is led by NetNut and enables customers to identify potential cyber-attacks, doubled its usage volume over a monthly period with more than 36 billion requests processed.
Its CyberKick consumer privacy business is also performing better than expected. Its user traction continues to grow, reaching over five million downloads. That trend is likely to continue considering that the privacy application is ranked among the top ten privacy applications in U.S app stores, with a boost in downloads expected from launching its solutions for Android and Microsoft Windows platforms.
Growth in those segments adds to a solid balance sheet. At the end of September, SFET’s cash position totaled about $3.86 million, representing about $0.48 per ADS outstanding. The company noted that its cash balance excluded an additional $4.3 million from its recently secured credit facility and investor’s financing.
Thus, there’s much to appreciate about how SFET has positioned itself to grow in 2023. From an investor’s perspective, they certainly check the right boxes. They have significant cash on hand, compelling products, strong management, and market diversity. It shows that the downtrend in SFET shares may be overdone. Yes, weak markets can pull even the best-positioned companies lower. But that’s not always bad news. In many cases, it presents an opportunity – and when appraising SFET’s valuation compared to performance, it certainly exposed a good one.
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