Shares of Barracuda Networks (NYSE: CUDA) surged 8% after hours on Monday after the cybersecurity and data storage company posted strong third-quarter earnings. Its revenue rose 11% annually to $88.8 million, beating estimates by $2.2 million. Non-GAAP net income more than tripled to $0.22 per share, beating estimates by $0.08.

The key facts

Barracuda's subscription revenue rose 17% annually to $68.3 million, or 77% of its total revenue. Appliance revenue, which was expected to decline, fell 6% to $20.5 million. Gross billings rose 13% to $100.4 million, while billings from core products rose 30% to $61.6 million and beat the company's own forecasts. Its total active subscribers rose about 15% to over 309,000, with a dollar-based renewal rate of 90%.

Those rosy numbers caused Baird to upgrade boost its price target for the stock from $29 to $31, implying an upside potential of over 20% from current levels. In a note to investors, Baird noted that Barracuda was "transitioning its model to a cloud-based model faster than most across the IT landscape", and that its penetration of the Fortune 1000 rose by 10 customers sequentially to over 50 -- "reflecting the up-market opportunity facilitated by the public cloud."

A positive sign for the cybersecurity market

Barracuda's strong Q3 numbers were seen as a positive sign for the cybersecurity sector, which has struggled over the past year due to slowing sales growth, challenging shifts from appliances to cloud-based services, low profitability, and high valuations.

Threat-prevention firm FireEye (NASDAQ: FEYE), for example, is still struggling to grow its sales fast enough to offset the costs of developing and marketing new cloud-based subscription services and all-in-one platforms to replace aging appliances. Shares of FireEye and many other cybersecurity stocks rose after Barracuda's report, but it's unclear how long those gains will stick.

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Leo Sun has no position in any stocks mentioned.

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