AT&T/AWS Partnership: Radcom Penetrates New Market?

Patrick Donegan, Chief Analyst at Heavy Reading, penned an article outlining some interesting things regarding the AT&T and Amazon Web Services partnership.

The AT&T/AWS partnership appears to be initially slated for Internet of Things infrastructure and, in my mind, more importantly, security [at least as it pertains to RADCOM and their MaveriQ product].

One last thing: I've been clear since shortly before our Big Communications Event in May that the security needs of enterprises have been crying out for collaboration between the WICs and security-savvy CSPs. Sure enough, this is another area in which AT&T and AWS say they plan to collaborate through this partnership.
Where the WICs [webscale internet companies] have to maintain network uptime for their data center tenants -- and are increasingly offering a menu of additional security services such as firewall and IDS/IPS to them -- it stands to reason that combining with leading CSPs to leverage the threat intelligence, detection and mitigation capabilities that they have throughout the wide-area network is a win-win in terms of delivering secure services, end to end.

As I pointed out here, RADCOM's MaveriQ product is really good at inspecting packets of information traversing the network and providing analytics, intelligence and insight for CSPs and WICs.

The other salient point suggested by Mr. Donegan is that we can likely expect more partnership news between CSPs and WICs, including Google and Verizon [and AT&T/Google & Verizon/AWS]. To that point, RADCOM CEO Yaron Ravkaie stated on the 4Q 2015 earnings call that he is, or was at that time, remaining focused squarely on the CSP opportunity; however, it appears that these CSP partnerships with WICs will help RADCOM penetrate the WIC market without specifically targeting the AWS/Google's of the world [AT&T is a RADCOM customer].

Whether can be translate MaveriQ and deploy into a Google if I understood correctly. The answer is maybe, okay. We don't have any concrete plans to attack that side of the market. We are very centric on service providers. It's huge opportunity for us. If you want to do the math, just think if for a company like us, if we go and win two to three large enough deals of let's say $50 million and above subscriber type carriers in the coming two years, reality is going to be so much different than a very positive 2016, that I need to keep company focused at least for the next coming years on this specific market.

In my mind, the NFV opportunity seems to be spinning up faster than Mr. Ravkaie suggested/foresaw when he made the comments above on the earnings call in February 2016 given recent news out of AT&T/AWS.

If all this is mostly right and only partly wrong, RADCOM's current $250 million market capitalization will seem exceedingly cheap if the company successfully penetrates the WIC market [likely via its CSP customers] and continues to close new, Tier-1 CSP deals for NFV service assurance and cybersecurity which is beginning to feel like a winner-take-most [or all] scenario.

Certainly other investors are beginning to take note. Average daily volume continues to increase, and the stock is quite liquid these days with over 350k exchanged today [over $7 million worth of stock].

Conclusion

The implications for small NFV software vendors like RADCOM and Radisys with Tier-1 CSP deals in hand remain high in terms of opening large new opportunities for growth at webscale players and further validating the importance of NFV software for service assurance, traffic management and cybersecurity.

RADCOM reports 3Q earnings on November 1 before the market open. While the numbers will be important, I think the narrative around the NFV story in terms of deal pipeline, new NFV modules/product expansions and/or transformative partnerships will drive the stock price over the coming months and quarters.

Disclosure: I own RDCM shares.