Urbem's 'Wonderful Business' Series: Check Point Software Technologies

Israel-based Check Point Software Technologies Ltd. (NASDAQ:CHKP) is one of the global leaders in making the internet secure, reliable and available for corporations and consumers. The company provides technology solutions for protecting corporate enterprises and governments from cyberattacks. Building on its heritage of pioneering the first firewall and with a long track record of industry-leading cybersecurity solutions, the company’s products provide corporate enterprises and governments worldwide with protection against a wide range of cybersecurity threats. As of fiscal 2018, 47% of its revenue was generated in the Americas (mainly the U.S.), 37% from Europe and the remaining 16% from the Asia Pacific, Middle East and Africa.

Check Point was founded by Israeli software engineer Gil Shwed, who is considered the inventor of the modern firewall. He is also the current CEO of the company, owning around 17% of the total shares. Co-founder and current Chairman Marius Nacht owns roughly 4%. Such sizable insider ownership indicates an aligned management interest. According to the company’s annual report, Shwed requested to forego his salary and bonus for the past several years.

Check Point has made a committed effort to build the business methodically by focusing on a subscription-based model, recurring cash streams and managing overhead. As of the first nine months of 2019, security subscriptions accounted for over 30% of the revenue and grew at almost 13% year over year. Recurring revenue, including subscriptions and maintenance, represent more than 75% of total sales, up from roughly 67% in 2016. As shown below, the margins have been stable and robust.

As the business has grown, Check Point has been consistently delivering more free cash flow and net profit every year since its initial public offering (see below), implying conservative accounting and cash-richness of the subscription model.

No single company has been

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