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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Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must 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. You should complete your own independent due diligence regarding the investment, including obtaining additional company information, opinions, financial projections, and legal or other investment advice.

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Rohit Kulkarni

Rohit Kulkarni

Rohit is the Managing Director, Private Investment Research for SharesPost Research LLC. Prior to joining SharesPost, Rohit was a Vice President, Senior Analyst at RBC Capital Markets.
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CONFLICTS: This report is being published by SharesPost Research LLC and 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. SP Investments Management is the investment manager of the SharesPost 100 Fund, a registered investment company, and other funds.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. 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 services. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

Information regarding companies in the SharesPost 100 List available on the website has been collected from or generated from publicly available sources. The availability of company information does not indicate that these companies have endorsed, supported, or otherwise participated with SharesPost. Company “thesis” is the opinion of SharesPost and is not a recommendation to buy, sell, or hold any security of such company.

Investors should be aware that, at any given point in time, the SharesPost 100 Fund (the “Fund”) may or may not have an ownership interest in any of the issuers discussed in the report. Accordingly, investors should not rely on the content of this report when deciding whether to buy, hold, or sell interests in the Fund. Instead, investors are encouraged to do their own independent research. Before investing in the Fund, investors are cautioned to carefully consider the investment objectives, risks, charges, and expenses before investing. For a prospectus containing more information about the Fund, please visit www.sharespost100fund.com. Read the prospectus carefully before investing.

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Analyst compensation is based upon various factors, including the overall performance of SharesPost Inc. and its subsidiaries and the performance and productivity of such analyst, including (1) feedback from clients of the SharesPost Financial Corporation and other stakeholders in our ecosystem, (2) the quality of such analyst’s research, and (3) the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost Inc., including brokerage sales.

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