Contact: Brenon Daly
As it gets set to hit the public market later this week, the question for Qualys is whether the on-demand security vendor can make the transition from a product to a platform. The 13-year-old company is known primarily for its vulnerability management offering, which will account for the vast majority of the $100m or so of bookings it will generate this year.
But Qualys is acutely aware of the fact that it won’t get a premium valuation if it doesn’t expand beyond that. The company has already helped its own cause with the early steps it has made in expanding its portfolio. It recently noted that revenue growth is outpacing customer growth. (In the first half of this year it bumped up its overall top line by 22%, about 5 percentage points higher than its growth rate in 2011.)
Qualys has a number of advantages as it attempts to pull off the transition. For starters, the company sells its service entirely on a subscription basis, which makes it easier – both commercially and in terms of technology architecture – to add additional security offerings. Besides its vulnerability management product, Qualys already offers five other products around compliance, Web application security and other areas.
That approach has drawn in nearly 6,000 customers for the company, providing a broad base to sell new products into. Yet, as Qualys highlighted during its roadshow, the company has only begun its cross-selling efforts. Currently, only one out of five customers uses more than one Qualys product.
The underwriters for Qualys, led by J.P. Morgan Securities and Credit Suisse Securities, are likely to be conservative in their initial pricing of what would be the fourth information security vendor to go public in the past year. As it stands, the range is set at $11-13 per share. We expect Qualys to actually price above that on Thursday and then likely move higher in the aftermarket, as the previous trio of enterprise security offerings have done. Even with the expected bump, Qualys will likely only create about $500m of market value. However, if the company can emerge as a true platform, that will be just the starting point.