Intrinsic value of A10 Networks - ATEN

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$9.55

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$9.55

 
Intrinsic value

$17.38

 
Up/down potential

+82%

 
Rating

str. buy

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ATEN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  15.58
  12.30
  11.57
  10.91
  10.32
  9.79
  9.31
  8.88
  8.49
  8.14
  7.83
  7.55
  7.29
  7.06
  6.86
  6.67
  6.50
  6.35
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
Revenue, $m
  230
  258
  288
  320
  353
  387
  423
  461
  500
  541
  583
  627
  673
  720
  769
  821
  874
  930
  987
  1,048
  1,110
  1,176
  1,244
  1,315
  1,389
  1,467
  1,548
  1,633
  1,721
  1,814
  1,911
Variable operating expenses, $m
 
  100
  111
  123
  136
  149
  163
  178
  193
  208
  224
  240
  258
  276
  295
  315
  335
  357
  379
  402
  426
  451
  477
  504
  533
  563
  594
  626
  660
  696
  733
Fixed operating expenses, $m
 
  168
  172
  177
  181
  186
  190
  195
  200
  205
  210
  215
  221
  226
  232
  238
  243
  250
  256
  262
  269
  275
  282
  289
  297
  304
  312
  319
  327
  336
  344
Total operating expenses, $m
  249
  268
  283
  300
  317
  335
  353
  373
  393
  413
  434
  455
  479
  502
  527
  553
  578
  607
  635
  664
  695
  726
  759
  793
  830
  867
  906
  945
  987
  1,032
  1,077
Operating income, $m
  -19
  -10
  5
  20
  36
  52
  70
  88
  108
  128
  149
  171
  194
  218
  243
  268
  295
  324
  353
  384
  416
  449
  485
  521
  560
  600
  643
  687
  734
  783
  834
EBITDA, $m
  -11
  -7
  7
  23
  39
  56
  74
  93
  112
  132
  154
  176
  199
  223
  248
  275
  302
  330
  360
  391
  424
  458
  494
  531
  570
  611
  654
  699
  746
  796
  848
Interest expense (income), $m
  0
  0
  -1
  -1
  0
  0
  1
  1
  2
  3
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
Earnings before tax, $m
  -20
  -10
  5
  20
  36
  52
  69
  87
  106
  125
  145
  167
  190
  213
  237
  262
  288
  315
  344
  374
  405
  438
  472
  508
  545
  585
  626
  669
  714
  762
  812
Tax expense, $m
  1
  0
  1
  5
  10
  14
  19
  23
  28
  34
  39
  45
  51
  57
  64
  71
  78
  85
  93
  101
  109
  118
  127
  137
  147
  158
  169
  181
  193
  206
  219
Net income, $m
  -21
  -10
  4
  15
  26
  38
  50
  63
  77
  91
  106
  122
  138
  155
  173
  191
  210
  230
  251
  273
  296
  320
  345
  371
  398
  427
  457
  488
  522
  556
  593

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  114
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  221
  120
  134
  149
  164
  180
  197
  214
  233
  251
  271
  292
  313
  335
  358
  382
  407
  432
  459
  487
  516
  547
  579
  612
  646
  682
  720
  759
  801
  844
  889
Adjusted assets (=assets-cash), $m
  107
  120
  134
  149
  164
  180
  197
  214
  233
  251
  271
  292
  313
  335
  358
  382
  407
  432
  459
  487
  516
  547
  579
  612
  646
  682
  720
  759
  801
  844
  889
Revenue / Adjusted assets
  2.150
  2.150
  2.149
  2.148
  2.152
  2.150
  2.147
  2.154
  2.146
  2.155
  2.151
  2.147
  2.150
  2.149
  2.148
  2.149
  2.147
  2.153
  2.150
  2.152
  2.151
  2.150
  2.149
  2.149
  2.150
  2.151
  2.150
  2.152
  2.149
  2.149
  2.150
Average production assets, $m
  9
  10
  11
  12
  13
  14
  16
  17
  18
  20
  22
  23
  25
  27
  28
  30
  32
  34
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  64
  67
  71
Working capital, $m
  98
  -18
  -20
  -22
  -25
  -27
  -30
  -32
  -35
  -38
  -41
  -44
  -47
  -50
  -54
  -57
  -61
  -65
  -69
  -73
  -78
  -82
  -87
  -92
  -97
  -103
  -108
  -114
  -120
  -127
  -134
Total debt, $m
  0
  -27
  -14
  -1
  13
  27
  42
  58
  74
  91
  109
  127
  147
  166
  187
  209
  231
  254
  278
  304
  330
  357
  386
  415
  447
  479
  513
  548
  585
  624
  665
Total liabilities, $m
  135
  108
  121
  134
  148
  162
  177
  193
  209
  226
  244
  262
  282
  301
  322
  344
  366
  389
  413
  439
  465
  492
  521
  550
  582
  614
  648
  683
  720
  759
  800
Total equity, $m
  86
  12
  13
  15
  16
  18
  20
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  43
  46
  49
  52
  55
  58
  61
  65
  68
  72
  76
  80
  84
  89
Total liabilities and equity, $m
  221
  120
  134
  149
  164
  180
  197
  214
  232
  251
  271
  291
  313
  334
  358
  382
  407
  432
  459
  488
  517
  547
  579
  611
  647
  682
  720
  759
  800
  843
  889
Debt-to-equity ratio
  0.000
  -2.240
  -1.070
  -0.080
  0.770
  1.500
  2.140
  2.700
  3.190
  3.630
  4.020
  4.370
  4.680
  4.970
  5.230
  5.460
  5.680
  5.880
  6.060
  6.230
  6.390
  6.530
  6.670
  6.790
  6.910
  7.020
  7.120
  7.220
  7.310
  7.400
  7.480
Adjusted equity ratio
  -0.262
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -21
  -10
  4
  15
  26
  38
  50
  63
  77
  91
  106
  122
  138
  155
  173
  191
  210
  230
  251
  273
  296
  320
  345
  371
  398
  427
  457
  488
  522
  556
  593
Depreciation, amort., depletion, $m
  8
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
Funds from operations, $m
  31
  -7
  7
  18
  29
  42
  54
  68
  82
  96
  111
  127
  143
  161
  179
  197
  217
  237
  258
  281
  304
  328
  354
  380
  408
  438
  468
  501
  534
  570
  607
Change in working capital, $m
  12
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
Cash from operations, $m
  19
  -5
  9
  20
  32
  44
  57
  70
  84
  99
  114
  130
  147
  164
  182
  201
  221
  241
  263
  285
  308
  333
  359
  385
  414
  443
  474
  506
  540
  576
  614
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
New CAPEX, $m
  -6
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
Cash from investing activities, $m
  -96
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
Free cash flow, $m
  -77
  -8
  6
  17
  28
  40
  53
  66
  79
  94
  109
  124
  140
  157
  175
  193
  212
  233
  254
  275
  298
  322
  347
  374
  401
  430
  460
  492
  525
  560
  597
Issuance/(repayment) of debt, $m
  0
  -27
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  39
  41
Issuance/(repurchase) of shares, $m
  9
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  8
  -27
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  39
  41
Total cash flow (excl. dividends), $m
  -69
  -35
  19
  30
  42
  55
  68
  81
  96
  111
  126
  142
  159
  177
  196
  215
  235
  256
  278
  301
  325
  350
  376
  403
  432
  462
  494
  527
  562
  599
  637
Retained Cash Flow (-), $m
  -6
  -40
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
Prev. year cash balance distribution, $m
 
  114
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  39
  17
  28
  40
  53
  66
  80
  94
  109
  124
  140
  157
  175
  193
  212
  232
  253
  275
  298
  322
  347
  373
  400
  429
  459
  490
  523
  558
  595
  633
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  37
  16
  25
  33
  41
  48
  54
  59
  63
  65
  67
  67
  66
  65
  62
  59
  55
  51
  46
  41
  36
  31
  26
  22
  18
  14
  11
  9
  6
  5
Current shareholders' claim on cash, %
  100
  100.0
  100.0
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A10 Networks, Inc. provides software and hardware solutions in the United States, Japan, and internationally. The company’s products are built on advanced core operating system platform. It offers application delivery controllers that provide advanced server load balancing; lightning application delivery service, a cloud-native software-as-a-service platform designed to boost the delivery and security of applications and micro services; and carrier grade networking address translation product that offer network address and protocol translation services for service provider networks. The company also provides threat protection systems for the protection of networks and server resources against massive distributed denial of service attacks; secure sockets layer insight that decrypts secure sockets layer-encrypted traffic and forwards it to a third-party security device, such as a firewall, for deep packet inspection; and convergent firewall, which consolidates multiple critical security capabilities in one package by consolidating multiple security and networking functions in a single appliance. Its solutions enable cloud providers, Web-scale companies, service providers, government organizations, and enterprises to secure and optimize the performance of their data center and cloud applications; and secure their users, applications, and infrastructure from Internet, Web, and network threats. The company delivers its solutions on optimized hardware appliances, bare metal software, virtual appliances, and cloud-native software. It serves telecommunications, technology, industrial, retail, financial, gaming, and education industries. The company markets its products through sales organizations, as well as distribution channel partners, including distributors, value added resellers, and system integrators. A10 Networks, Inc. was incorporated in 2004 and is headquartered in San Jose, California.

FINANCIAL RATIOS  of  A10 Networks (ATEN)

Valuation Ratios
P/E Ratio -30.9
Price to Sales 2.8
Price to Book 7.5
Price to Tangible Book
Price to Cash Flow 34.1
Price to Free Cash Flow 49.9
Growth Rates
Sales Growth Rate 15.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -10.1%
Ret/ On Assets - 3 Yr. Avg. -18.5%
Return On Total Capital -25.3%
Ret/ On T. Cap. - 3 Yr. Avg. -45.1%
Return On Equity -25.3%
Return On Equity - 3 Yr. Avg. -50%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 76.1%
Gross Margin - 3 Yr. Avg. 75.9%
EBITDA Margin -5.2%
EBITDA Margin - 3 Yr. Avg. -10.8%
Operating Margin -8.3%
Oper. Margin - 3 Yr. Avg. -14.7%
Pre-Tax Margin -8.7%
Pre-Tax Margin - 3 Yr. Avg. -15.5%
Net Profit Margin -9.1%
Net Profit Margin - 3 Yr. Avg. -16.2%
Effective Tax Rate -5%
Eff/ Tax Rate - 3 Yr. Avg. -4.5%
Payout Ratio 0%

ATEN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ATEN stock intrinsic value calculation we used $230 million for the last fiscal year's total revenue generated by A10 Networks. The default revenue input number comes from 2016 income statement of A10 Networks. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ATEN stock valuation model: a) initial revenue growth rate of 12.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ATEN is calculated based on our internal credit rating of A10 Networks, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of A10 Networks.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ATEN stock the variable cost ratio is equal to 38.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $164 million in the base year in the intrinsic value calculation for ATEN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for A10 Networks.

Corporate tax rate of 27% is the nominal tax rate for A10 Networks. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ATEN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ATEN are equal to 3.7%.

Life of production assets of 1.6 years is the average useful life of capital assets used in A10 Networks operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ATEN is equal to -7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $86 million for A10 Networks - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 69.485 million for A10 Networks is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of A10 Networks at the current share price and the inputted number of shares is $0.7 billion.


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COMPANY NEWS

▶ Why A10 Networks Stock Plunged Today   [12:47PM  Motley Fool]
▶ A10 Networks reports 1Q loss   [Apr-27-17 05:34PM  Associated Press]
▶ Why A10 Networks Popped 19% in February   [Mar-14-17 08:42PM  Motley Fool]
▶ Is Solaredge Technologies Inc (SEDG) a Good Buy?   [Dec-12-16 05:06PM  at Insider Monkey]
▶ Hedge Funds Are Betting On A10 Networks Inc (ATEN)   [Dec-04-16 06:36PM  at Insider Monkey]
▶ Why A10 Networks Shares Got Demolished Today   [Oct-28-16 12:28PM  at Motley Fool]
▶ A10 Networks Joins the Cisco Solution Partner Program   [Aug-29-16 08:00AM  Marketwired]
▶ [$$] Cisco-F5 Networks Deal Makes Sense   [Jun-08-16 03:10PM  at Barrons.com]
▶ A10 Networks Grows Revenues, Trims Losses in Q1   [Apr-29-16 01:00PM  at Investopedia]
Stock chart of ATEN Financial statements of ATEN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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