Proofpoint Shares Tank as Increase in Costs Overshadows Earnings Beat

Shares of Proofpoint (PFPT), a security and compliance firm, slumped early on Friday as the pace of growth in its costs and expenses took the shine off a beat on both sales and earnings in the third quarter.

Total revenue rose to $184.2 million during the three months that ended September 30 as billings surged, from $134.7 million a year ago, the company said in its earnings statement. The 36.7% jump in sales took it past the $181.4 million-estimate compiled by Capital IQ.

Reflecting the higher turnover, adjusted earnings per share also climbed to $0.40 in the period under review from $0.30 a year earlier, cruising past a market forecast of $0.28.

The results “were again driven by the rapidly evolving threat landscape, the ongoing shift to the cloud, and continued high demand for our advanced threat and compliance capabilities,” Chief Executive Officer Gary Steele said in the statement.

However, growth in Proofpoint’s sales was accompanied by a bigger increase in total operating expense, which climbed to $159.8 million in the third quarter from $112.3 million in the prior-year period, a surge of 42.3%. Total cost of sales also rose by 41.4% to $50.9 million, clipping the gross margin by 100 basis points.

Looking ahead to the fourth quarter, the firm said that it expects revenue to come in a range of $191.0 million to $193.0 million and adjusted earnings per share in between $0.33 to $0.36 per share, which is in line with the Street’s views of $192.3 million and $0.33, respectively.

Ignoring the beats and in-line forecasts, investors punished Proofpoint’s shares, which were down by 16.3% at the time of writing on Friday.