Allot Ltd. - $ALLT
Contributed by PM at $100-500mm HF
New CEO
Activist
Revenue Mix Shift
Cost Cuts
Market Share Gainer
Recently Non-GAAP Profitable
Stock Price Chart
Company Overview
ALLT operates in two segments. The legacy deep packet inspection (DPI) business provides networking software that lets telecoms "see inside" data packets transmitted over IP networks. This enables granular network management, including bandwidth prioritization for services like streaming/VoIP, real-time usage monitoring, malicious traffic detection/blocking, and identifying abnormal patterns like DDoS attacks. With the rollout of 5G, data throughput could 10X. This could cause DPI demand to grow.
Their newer and key growth segment is Security-as-a-Service (SECaaS), which integrates network security directly into telecom infrastructure. They offer telecoms like Verizon and Vodafone a suite of security features (malware protection, anti-phishing, parental controls) that the telecoms can then sell to their subscribers for $2-3/month. Allot typically gets a revenue share of these subscriptions.
Key 2024 developments: Appointed new CEO Eyal Harari in May 2024 who successfully led Radcom's turnaround. The company has faced activist pressure from major shareholders (Outerbridge and Lynrock Lake), leading to half the board being replaced in recent years. They've dramatically improved cost structure and recently achieved non-GAAP profitability.
Tension Points
Can ALLT land an expansion with Verizon for its SECaaS offering?
The key contention is whether ALLT can expand from Verizon's relatively small Fixed Wireless Access (FWA) business subscriber base (1.69M lines) to their much larger Business Mobility group (15M lines). The December 2024 launch of Verizon's Business Mobile Internet security offering suggests potential expansion. Bulls argue an expansion would be a major validation of ALLT's technology and drive significant growth given historical 40-50% attach rates with other carriers. It would also be a huge endorsement of ALLT’s technology. Consider Eyal Harari’s prior work experience as CEO of Radcom where he had a multi-year relationship with AT&T. Bears worry about timing uncertainty with large carriers.
Key Developments
Initial Verizon contract focused only on FWA business subscribers launched mid-2023; Early adoption metrics have reportedly been strong (with 40-50% attach rates mentioned); In December 2024, Verizon launched its Business Mobile Internet security offering, which appears to use ALLT's technology based on product specifications.
What To Watch
Timing with large carriers is always subject to pushouts; Watch for any PR announcements surrounding ALLT’s partnership with Verizon; If they land a deal, see if management provides any color on adoption trends; Attach rates have gone as high as 50% in deals with other, smaller carriers; Dig into whether it's a revenue share deal or fixed price per subscriber structure; Impact on sales cycles with other major US carriers (expansion could accelerate them).
Back of Napkin Math
At a ~$2-3 monthly price point and historical 40-50% attach rates: Current FWA base (1.69M): ~$15-20M annual revenue potential Business Mobility (15M): ~$150-200M annual revenue potential Total combined TAM: ~$165-220M annual revenue opportunity
How will Sandvine’s blacklisting by the US government and bankruptcy concerns affect ALLT’s market share capture going forward?
With Sandvine's effective exit, ALLT has a unique opportunity to consolidate the market. DPI remains mission-critical for carriers - especially with 5G driving massive increases in data throughput - suggesting customers will need to find alternatives rather than going without. Bulls contend that ALLT becomes the only scaled, independent DPI vendor remaining. Bears note that DPI sales cycles are notoriously long (6-12+ months) and management has been notably conservative about potential revenue gains.
Key Developments
November 2023: US government blacklisted Sandvine for enabling authoritarian surveillance; Francisco Partners (PE owner) exited their stake in Sandvine; Credit agencies downgraded Sandvine's debt, raising bankruptcy concerns; Sandvine announced plans to exit 50% of their geographies and laid off 40% of staff; ALLT launched new DPI product (Terrace Service Gateway 3) with 3x performance improvement; Q3'24 earnings call noted "benign competitive environment" in DPI space.
What To Watch
Keep an eye on win rates on Sandvine's legacy customer base as contracts come up for renewal; Sales cycle length - any acceleration could indicate customers proactively switching; Pricing power improvements as competition diminishes; Management commentary on DPI pipeline growth and conversion rates; Geographic expansion in markets where Sandvine is exiting.
Back of Napkin Math
Sandvine's estimated annual revenue: ~$175M If ALLT captures 30% of Sandvine's business: $175M * 30% = ~$52.5M revenue opportunity At 65% gross margins = ~$34M incremental gross profit Very high incremental margins since ALLT's DPI infrastructure/R&D already in place ALLT's current DPI revenue: ~$75M annually Potential DPI revenue post Sandvine share gains: $75M base + $52.5M from Sandvine = $127.5M ~70% growth in DPI segment
Can ALLT land SECaaS deals with major CSP providers and, if so, on what terms?
Bulls argue recent wins and accelerating growth (>50% YoY in Q3'24) validate the product-market fit, while bears question if deals will have favorable economics given carriers' historical tendency to squeeze vendors on pricing.
Key Developments
Vodafone Securenet Home launched in Germany, Italy, and Portugal. Taiwan FarEast Tone continually discloses penetration rates within its customer base: 10% penetration, 46% growth in paid subscribers using the ALLT product since the start of 2024 at $2/month; Telefonica Spain reached 40-50% customer penetration in under 2 years; New CEO brings carrier relationship experience from Radcom/AT&T dealings.
What To Watch
Keep an eye out for: Color around revenue share vs fixed price structure in new deals; Penetration rates at recent launches (historically 40-50% at mature carriers); Time from contract signing to meaningful revenue generation; Customer acquisition costs and gross margins as they scale; Geographic expansion, particularly in APAC where they're targeting Tier 1 wins