Outerbridge Capital's Rory Wallace on Allot's rebound and how to value Verizon partnership $ALLT

Summary

• Outerbridge’s Rory Wallace argues Allot ($ALLT) is a broken-then-fixed story the market still hasn’t repriced: a ~$250M EV company addressing what he aggregates to a ~$10B TAM. The stock has run from ~$3 in December to ~$7.50-8, but he says the rerate — from ~1x to ~2.5x trailing revenue — still lags the fundamentals: “the trajectory of improvement is actually more rapid than the pace of the stock price increase.”
• The variant view is an unannounced Verizon expansion. Verizon signed Allot’s security-as-a-service (SECaaS) in 2022, launched mid-2023 into just ~1.5M business fixed-wireless subs; Wallace believes it recently expanded toward Verizon’s 30M business mobile lines — multiplying the Verizon TAM being addressed by 20x — with ultimate scaling potential of “a couple hundred million dollars in annual recurring revenue.” Crucially hedged: “this has not been press released by Verizon or Allot… we do not have certainty on this.”
• Andrew Walker’s core pushback: in carrier-vendor relationships, “I worry all the economics goes to Verizon” — buy-vs-build plus procurement bake-offs squeeze suppliers. Wallace’s rebuttal: Allot scans traffic inline in the network core while every rival sells easier-to-evade DNS-based lookups, it takes years to unseat a core-network incumbent, and the carrier itself earns revenue on the product (a Telus transcript cited 50%+ attach when offered).
• The Vodafone history is both the cautionary tale and the proof point. Allot seeded Vodafone with an all-you-can-eat license — Wallace’s illustrative $5M figure was explicitly made up — and Vodafone’s Secure Net grew to $160M in annual revenue, meaning Allot “sold away the farm.” Ten years later Vodafone renewed, expanded into home internet, and is moving to a SECaaS model with paid economics starting this year.
• On the “this was written up bullishly on VIC in 2015, 2020 and 2022 and was always wrong” objection, Wallace concedes the old regime’s sin was TAM-based extrapolation of Vodafone’s ramp — after setting a ~$25M 2022 target, it cut numbers “I think, 8 to 12 straight quarters in a row.” The new regime models bottoms-up monthly sub adds per carrier: roughly $17M of SECaaS revenue this year, with $19M of ARR per guidance, growing 50-60% with “step function moves higher in the early part of next year.” He’s “on record” expecting “very strong validation… over the course of 2025.”
• A second, underappreciated leg: the legacy DPI business is at a ~10-year trough just as duopoly rival Sandvine goes bankrupt amid US sanctions — exiting 50% of its geographies or ceding 50% of its revenue and laying off 40% of staff — while Allot ships a product refresh that triples specs. “To be a customer of Sandvine you have to be looking for alternatives right now”; slow sales cycles mean no hockey stick, but pricing pressure eases.
• Valuation and alignment: Wallace sees $200-300M consolidated revenue in a few years at ~25% growth, arguing for 6-7x revenue (between A10’s 3-4x and Fortinet’s ~10x) or 20-30x earnings. New CEO Alon Harari (ex-RADCOM, where AT&T was a 40% customer) plus 22% holder Lynrock Lake with a convert at $9.30 are notable, and Wallace says that if Lynrock shares his view, it could be playing for “a $20, 30, 40, 50 stock in a couple years” rather than a quick sale.

Deep dive

1. From Napster-era packet inspection to last man standing

• Wallace’s history lesson: Allot embeds deep packet inspection in tier-one carrier cores — scanning every packet, classifying “is this Facebook, Twitter, a video game” and applying policy. The canonical use case: Sandvine helping Comcast throttle Napster and LimeWire power users. Powerful, but niche — roughly a $500M TAM for a handful of vendors across most of the last two decades.
• Why the sector’s stocks died: this is “a Ferrari type product” — operators deploy it, refresh it on product cycles, but don’t grow it annually. Vendors priced at 5-6x revenue for sustained growth stagnated after the 2010 upcycle; Procera and Sandvine merged under Francisco Partners, and “Allot was left as the sort of last man standing.”
• The pivot that sets up the thesis: leveraging that trusted core-network incumbency to sell consumer and small-business cybersecurity installed inside the carrier network — zero end-user installation. His framing: “in technology… friction is everything” — if protection is one click with no service degradation, adoption should be very high.

2. The variant view: right product, wrong timeline — and a Verizon expansion nobody has announced

• The wreckage first: management set a ~$25M 2022 SECaaS revenue target off the Vodafone tentpole deal, then cut numbers for, Wallace thinks, “8 to 12 straight quarters in a row” while burning cash; analysts dropped coverage. Wallace’s diagnosis: “they essentially were correct on the value proposition of SECaaS and where they struggled was with the realistic timeline to implementation” — and that optimism “filtered down into how they ran the P&L.”
• Where the alpha lives: from the P&L alone “you could easily… say revenues are down for four years, this is just a secular declining company — probably it should just be fire-sold.” Only by talking to customers and working conferences like MWC in Spain did Outerbridge hear that Verizon — 100M consumer and 30M business mobile lines — was “very happy” with a deal that launched mid-2023, adding only “$100,000, $200,000 of revenue at a time.”
• The claim, with its hedge intact: Wallace believes a significant Verizon expansion “recently occurred,” and that the product could ultimately “reach a couple hundred million dollars in annual recurring revenue” — but “this has not been press released by Verizon or Allot… we do not have certainty on this,” inferred from product specifications and Verizon’s own marketing. The Vodafone expansion, by contrast, is public and discussed on earnings calls.

3. Walker’s pushback: the distribution owns the economics

• The worry spelled out: Verizon can always say “this is a buy versus build decision for us,” or shop Allot’s 50 cents per sub to a rival at 45 — “I worry all the economics goes to Verizon and eventually Allot kind of gets sucked down.” Wallace grants the premise: facing tier-one procurement teams “designed to beat up on vendors” is “probably one of the least fun jobs you can have.”
• His structural answers: Harmonic runs 70-80% revenue concentration with Comcast/Charter yet extracts reasonable renewal terms; getting into the core of Verizon’s network takes years — and so does unseating you. And the ~$5B SECaaS TAM is “big for a small-cap company… but it’s not so big that you’re bringing in a million different competitors and venture companies.”
• The technical moat: every other vendor pitching telcos does DNS-based lookups — “quite easy to evade in certain scenarios… ultimately a more commodity-like offering” — while Allot scans traffic in the network, looking at metadata, patterns and anomalous usage.
• Vodafone as the decade-long experiment: Allot sold an all-you-can-eat license; Wallace’s illustrative “$5 million” example was explicitly made up. Vodafone’s Secure Net reached $160M annual revenue, and Allot captured “not even a fraction of those economics.” Yet Vodafone “literally had 10 years to do something different and they ended up coming back to where they began and upsizing” — expanding to home internet and moving to SECaaS economics. The operator can also make revenue from the offering: a Telus transcript cited 50%+ attach when offered.

4. Would anyone actually buy security from their telco?

• Walker’s skepticism, as told: telco add-ons feel like rental-car insurance or the old AOL dial-up upsell — “anytime I’m offered an extra by a big telco it’s… at an inflated price and they’re probably going to make a lot of margin on it.”
• Wallace’s case: the internet should be “clean pipes,” $2 per user per month is not steep against real security budgets, and susceptibility is universal — “we all have known someone that we thought of as being too smart or too sophisticated to get phished, and then they did.”
• The example that lands: Walker admits he never changed the password on his kid’s Nanit baby monitor. Wallace says Allot can scan for anomalous usage and Trojans; when Walker proposes the camera jumping from a megabyte per second to 5,000 megabytes, Wallace’s guess is that the telco would shut it off, with alerts and reports generated. This is the mechanism behind IoT devices getting “hacked at a surprisingly high rate” and conscripted into DDoS botnets. Parental controls ride on the same console.
• For businesses, the pitch is redundancy: CISOs preach layered security, and this is layer one — “before the traffic gets to you.” Wallace notes that it is technically Layer 7 because it looks inside the packet, but Layer 1 of the customer’s security stack. A no-budget small business can run on it alone; larger ones stack other products on top.

5. “Did I miss it?” versus “this has been dead money since 2015”

• On the run from $3 to ~$7.50-8: Wallace says no one’s missed it, though “pullbacks obviously should be expected.” What changed: board and management turnover, a restructuring curing the “lack of P&L discipline,” two straight quarters of positive cash flow, GAAP and non-GAAP profitability — rerating the stock from ~1x to ~2.5x trailing revenue, still behind the fundamental trajectory in his view.
• The forward math: SECaaS revenue of roughly $17M this year and $19M of ARR per guidance, growing 50-60% and “on the cusp of some step function moves higher in the early part of next year” as new contracts turn on.
• Walker’s receipts — worth keeping: he kept notes on three VIC writeups (2015 through 2022), “all quite bullish… all, to be frank, wrong”; a 2020 piece projected $120M of 2024 subscription revenue and actual disclosures “have two of those three numbers… just kind of missing the third.”
• Wallace’s why-it’s-different: the old team ran TAM-based math expecting every customer to ramp like Vodafone; the new team triangulates bottoms-up monthly sub adds per carrier. The pond is small today — Verizon business FWA is ~1.5M subs — but vaulting into 30M business mobile subs means “all of a sudden you’re 20x your TAM,” and Vodafone starts paying on a SECaaS basis this year. “We’re on record… there’s going to be a very strong validation of this company over the course of 2025.”

6. New operators, AT&T optionality, and who owns the register

• CEO Alon Harari, ex-RADCOM: as CTO he helped lead a refresh of Radcom’s technology lineup; through that, Radcom expanded deals with AT&T and Rakuten. As Radcom’s CEO, he delivered double-digit growth and doubled net margins from ~8% to ~20% (about 8 points of that interest income, Wallace notes). He’s “a technologist at heart,” based in Tenafly, NJ — practically down the street from Verizon’s Basking Ridge HQ — and his AT&T relationship (a 40% RADCOM customer) “potentially could lead to a deal for Allot at AT&T.”
• AT&T isn’t required: it currently uses app- and DNS-based solutions, but Telefónica and Vodafone both run Allot’s white-label SECaaS in Spain, a Czech launch happened recently, and Allot has some big wins in Asia-Pacific. “The opportunity is big enough at Verizon and Vodafone alone to where Allot could scale this past a hundred million of SECaaS revenue.”
• Cap table and governance: Outerbridge ~7%, Clal Insurance ~7%, and Lynrock Lake at 22% with a board seat plus a convertible note converting at $9.30 — “kind of right around the money now.” New CFO Liat Naim comes from Amdocs and Taboola; new chairman David Reis and director Rafi Kon, former CEO of Radware and NDS (sold to Cisco for several billion), round out an “operationally savvy” refreshed board. Both executives are in their 40s — “people that are in the prime of their careers” on a 10-15 year roadmap.
• On exits, Wallace says he cannot speak for Lynrock Lake’s long-term approach, but “I don’t think they’re looking to sell the company imminently… but I do think people would love to buy it at these levels.” If Lynrock shares his view of “a $20, 30, 40, $50 stock in a couple years,” they’ll play for it.

7. Valuation debate and the Sandvine gift to the legacy business

• Wallace’s frame: $200-300M consolidated revenue in a few years at ~25% growth and high incremental margins deserves 6-7x revenue. If Allot has a $40-50M SECaaS line and another ~$125M of revenue from the other business, he argues the blend can be compared with A10 at 3-4x and Fortinet at ~10x. Alternatively, 20-30x earnings on real free cash flow could be reasonable.
• The DPI catalyst: Sandvine landed on the US sanctions list for “helping governments spy on their citizens and do censorship,” went bankrupt into a stalking-horse process, is exiting geographies representing 50% of revenue and cut 40% of staff. “To be a customer of Sandvine you have to be looking for alternatives right now” — just as Allot ships a Service Gateway refresh that “basically triples the specs.”
• Both temper the timing: months-to-quarters sales cycles mean deal awards precede revenue, “probably not going to be a hockey stick” — but pricing pressure eases and the funnel fills. Walker’s corroborating detail from the Q3 call: management called it a “benign competitive environment,” and no CIO wants to defend a bankrupt vendor to their board.