Avast (AVST): A Tech Billionaire You Have Probably Never Heard Of

Jeff Bezos. Bill Gates. Larry Ellison. Mark Zuckerberg. Larry Page…

…and Pavel Baudis.

No, I had not heard of Mr Baudis either until I looked at Avast (AVST), a developer of anti-virus software.

SharePad confirms Mr Baudis owns 257 million Avast shares, which at the near-£5 share price values his stake at more than £1.2 billion:

Okay, not quite in Jeff’s league, but a tech billionaire nonetheless.

SharePad also shows fellow directors Eduard Kucera owning shares worth £500 million and Ondrej Vicek with shares worth £100 million.

Messers Baudis and Kucera are non-execs and co-founded what became Avast during the late 1980s. Their first project was writing a computer program to crack the Vienna virus:

AVST founders

Mr Vicek joined Avast in 1995 as a developer and has since risen through the ranks to become CEO.

I like how the main shareholders/directors have direct hands-on experience of what the employees do day-to-day. I am convinced such leadership makes a positive difference at companies. I also like how the CEO has waived his salary and annual bonus indefinitely:

Ondrej Vlcek, Avast CEO, has notified the Company’s Board of Directors of his intention to indefinitely waive his annual salary and bonus, and instead receive a nominal annual salary of US$ 1. He will continue to receive annual equity grants, as part of Avast’s long term incentive plan, calculated as a multiple of his (waived) base salary.

Mr Vlcek has also notified the Board of his intention to donate 100% of his Board director’s fee ($100,000 per annum) to charity. The initial recipient will be a UK based charity, Demelza Hospice for Children. All arrangements are effective from the date of Mr Vlcek’s appointment to the role of CEO on 1 July 2019.”

Not many CEOs given up their basic pay, although waiving what would have been a $700k salary is easier to do with a £100 million shareholding plus 5 million stock options.

Avast floated only in 2018, so the readily available financial history is somewhat limited. Nonetheless, SharePad shows some quality measures:

AVST sharepad summary

Forecasts show single-digit growth and the P/E could be around 19, which is not outrageous for a large-cap tech share in the current market:

AVST sharepad forecasts

Bear in mind the last results showed gross debt of almost $1 billion, which could distort the valuation. Adding back the debt to the £5.1 billion market cap gives approximately $7.6 billion, which lifts the possible multiple to 22.

Downsides include:

  • Based in the Czech Republic
  • Made a sizeable acquisition in 2016 — could perform more
  • Debt is not insignificant (almost 3x earnings)

The admission document is a good place to look for other risks.

The largest danger to me is Windows Defender. If this built-in anti-virus scanner is beefed up by Microsoft, why would anyone pay for Avast’s software?

Something I did not think of is the PC replacement cycle, and customers not renewing their software:

And (presumably low cost) “viral marketing” might explain the high margins, although such marketing may not be what a FTSE 100 business should now be dependent on:

I have no special insight into Avast beyond the above, but I do like management’s background and the general idea that a billionaire is not going to put his/her wealth at great risk — which ought to protect smaller investors.

What does the forum think?

Maynard

Hi,

If I compare to Avast to Fortinet (a US listed company), ceteris paribus, the historical valuation is ‘good’ at fc pe of 19 vs 36, however if projected growth is taken into the valuation equation, the value/peg is worse at 2.6 (pegy) vs 0.8.

Also, I am struggling with how Avast plan to compete not only with Microsoft (which you mention), but other companies who are cloud suppliers and also offer cloud based security solutions, giving those companies the first opportunity to ‘sell in’ internet security. (Do Avast offer cloud services other than security - it isn’t immediately obvious that they do?).

Following on from this, is ‘cloud security’ an industry which benefits from specialisation when compared to the general supply of cloud services? Personally, As a retail customer, I don’t see any brand differentiation/premium for Avast relative to other suppliers. They all seem like a commodity supplier to me at the moment? (IT professionals out there would know a lot more for the B2B perspective).

Despite it’s current good financial metrics and management having skin in the game, I wouldn’t invest in Avast due to the the competitive disadvantage of only offering security combined with it’s remoteness from the US.

Hi Ben

Thanks for the reply.

As far as I can tell, there is no ‘cloud security’ aspect to Avast. Users download the software onto their own machines. I am not an expert by any means, but I would have thought installed software would be more efficient (speed-wise) at detecting viruses on a local drive than a cloud service. Cloud services would be used if all your software was on a cloud drive (I think).

There are a number of Avast alternatives, and you could spend days studying tests such as this to determine which service is best:

At least Avast and AVG (owned by Avast) were ranked in the top group in that test. I think most people go for the brands they have heard of, so Norton and McAfee, and/or just use the Microsoft default. The risk with all these services is adverse actions from Microsoft.

The viral marketing I mentioned relates to affiliate marketing, which can be useful for much smaller companies but I always think larger firms really ought to have the resources not to rely on what can be a somewhat shady practice. Reminds me of boohoo influencers. The customer forum looks very dated, too: https://forum.avast.com/

Maynard