Commtouch Software (CTCH $3.00) appears on track to report excellent on target Q3 results. The company provides a range of security software to OEMs, which bundle it with other services for enterprise networks. Commtouch also supplies Internet providers with its spam control and anti virus technologies. Most revenue is subscription based, earned over multi year periods. The company expanded last year via acquisition. It also has been adding new customers at a fast pace in 2011. Margins on the acquired products were lower than the corporate norm but Commtouch has been improving their profitability. Overall margins continue to rise and could return to previous levels next year. Competition exists in each of the company's product areas but no other company offers the full suite that Commtouch provides. Customers are trending towards the one stop shopping approach. New products are in the pipeline. Additional acquisitions are being investigated.
Our estimates are unchanged. Like most Israel based companies that primarily generate revenues outside the country, Commtouch should benefit from the strenghtening U.S. Dollar. Costs incurred in Israel will be translated at a lower rate for U.S. financial reporting purposes.
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