Another Cybersecurity Unicorn In The Making? Hacking Into Tenable IPO
July 24, 2018 | Blog

Another Cybersecurity Unicorn In The Making? Hacking Into Tenable IPO

Executive Summary: We think Tenable could be headed to Unicorn status, given its financials, improving profitability, and strong investor demand for cybersecurity firms. The Maryland company, whom investors valued at $875 million as of 2015, makes software that enables companies to understand and reduce cybersecurity threats.

Tenable’s planned IPO comes amid a strong climate for cybersecurity startups. Earlier this year, Carbon Black and Zscaler completed successful IPOs that implied a 150 percent premium over private market valuations. And private equity firm Thoma Bravo recently acquired a majority stake in Centrify, a deal that most likely valued the security software company above its private market valuation.

Below are top 10 observations from Tenable’s S-1. Stay tuned as we learn more about the company’s IPO plans via subsequent filings.

1. Tenable seeks to raise $100 million. Morgan Stanley and J.P. Morgan are the lead underwriters. The company plans to trade with Nasdaq under the ticker symbol TENB.

2. Tenable enjoys a robust revenue growth outlook. The company generated $187 million in revenue last year, a 50 percent jump over 2016 and a significant improvement over the 33 percent growth rate it experienced between 2015 and 2016. Based on recent trends, we expect Tenable to increase sales 30 percent over the next 12 months.

3. Tenable benefits from a large and expanding market opportunity. According to the filing, Tenable estimates the Cyber Exposure market to hit $16 billion in 2019 as companies continue to confront a growing array of threats and hacks.

4. Tenable, however, has a long history of losses and cash burn. As of March 31, 2018, Tenable’s total losses exceeded $177 million ($83.8 million in 2015, $37.2 million in 2016, $41 million in 2017, and $15.9 million for the first three months of this year).

5. Tenable faces significant competition from both public and private companies. Tenable’s competitors includes everyone from Qualys, Rapid7, Tanium, and CrowdStrike, to larger players like IBM. These companies focus on specific markets like vulnerability management and assessment, security software and services, endpoint security, and point solutions.

6. Tenable boasts an attractive freemium pricing model. Tenable has successfully executed a “Freemium” SaaS business model in which it acquires new customers with a free version of a popular product and then upsells them value-added licenses over time. As of year-end December 31, 2017, 24,000 customers from 160 countries licensed one of their three main products. Tenable sells its software to 53 percent of Fortune 500 and 29 percent of the Global 2000, including FedEx, U.S. Bancorp, Vodafone, and Amazon.

7. Tenable’s gross margins beats peers. The company posted gross margins of 89 percent in the first quarter 2017 and 85 percent for the three months ended March 31, 2018. By contrast, Carbon Black generated gross margins of 79 percent for the same two quarters, and Zscaler reported gross margins of 79 percent for the quarter ending April 30, 2017 and 81 percent for the same period in 2018.

8. Tenable holds a strong record of customer acquisition and spend metrics. Tenable has increased the number of customers who spent $5,000 or more a year to license its Tenable.io or SecurityCenter products to 1,017 in 2017 from 493 in 2015. The company already boasts 301 such customers in the first quarter of 2018. Further, the number of customers with annual contracts of $100,000 or greater grew to 265 in 2017 from 45 in 2015.

9. Top two institutional holders own roughly 70 percent of Tenable. Insight Venture Partners (35.3 percent) and Accel (34.4 percent) are the company’s largest shareholders. Co-founders Ronald Gula and John C. Huffard Jr. hold an additional 11.5 percent and 5.1 percent respectively. We believe such a proportion of institutional ownership could lead to lower volatility in Tenable’s post-IPO stock performance.

10. Standard 180-day lock-ups. Tenable’s executive officers, directors and holders of substantially all of its common stock and securities that they can be converted to common stock have agreed that, subject to certain exceptions, to not sell their shares for a period of 180 days from the date of the company’s final prospectus.

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Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

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Alejandro Ortiz

Alejandro Ortiz

Alejandro is a Research Analyst, Private Investment Research for SharesPost Research LLC. Prior to joining SharesPost, he was a Valuation Analyst at Duff & Phelps with a focus on TMT industries.

PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

CONFLICTS

This report is distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own financial advisors before making any investment decisions. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about the subject matter therein, including all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be during their employ directly or indirectly related to their specific views contained in this report.

Analyst compensation is indirectly based upon the growth and success of SharesPost, Inc., including the overall performance of its subsidiaries, the individualized performance of any such analyst, and the development and progression of the overall research effort. SharesPost, Inc. earns revenue from, among other avenues, brokerage sales, and therefore the analyst may indirectly benefit from research reports that have the ultimate effect of increasing trading activity, either through SharesPost Financial Corporation and/or with SharesPost Investment Management, LLC.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, transaction, or security. The opinions expressed in this report reflect the judgment of the analyst at a specific point in time and are subject to change. The information contained in this report has been obtained from sources the analysts consider to be reliable; however, there is no guarantee the any of the information is accurate.

Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.