Check Point - A target for acquisition?

Once-mighty Check Point Software Technologies has become an easy target for industry pundits. While new and old rivals add to their security software portfolios, Check Point has rested on its ZoneAlarm firewall laurels, announcing a series of ho-hum products while driving a leisurely 55mph on the infosecurity autobahn. As its market prospects have come into question, Check Point's product mix, business model and go-it-alone nature have been singled out by critics as problems. Check Point tends to ignore the feedback, instead telling the naysayers that they simply don't understand.

In the past, I've offered the same type of subjective feedback about Check Point as others. Check Point either ignored me or told me I was dead wrong. With this in mind, I recently looked at Check Point's recent financials for clues to the company's outlook.

Check Point revenue growth is tepid, at best. In fiscal 2005, revenue grew approximately 12 percent over the previous year. As a comparison, Cisco Systems, the uncontested networking and network security leader, posted almost 15 percent year-over-year revenue growth.

But when it comes to profitability, Check Point has a better story to tell. Net income after taxes is a whopping 55 percent of revenue. Since Check Point is a software company, a fair comparison might be Microsoft or Oracle. It turns out that Check Point has them both beat by a mile. Microsoft comes in around 30 percent, Oracle at 25 percent.