Company Reports

We are lowering our fair value estimate for narrow-moat Qualys to $143 from $155, after the firm reported decent second-quarter results with a top-line deceleration outweighing its improved profitability. Top-line momentum showed cracks as second-quarter sales decelerated year over year, with further deceleration baked into management’s outlook for the upcoming two quarters. We attribute a portion of these top-line wobbles to vendor consolidation, with customers increasingly opting for more solutions from larger vendors, putting smaller players like Qualys in a tough spot. With shares dropping after hours, we view Qualys as fairly valued relative to our updated fair value estimate.

We view Qualys as a strong cybersecurity vendor focused on providing cloud-based security and compliance solutions to its clients. The firm’s primary solutions revolve around vulnerability management, or VM, and are designed to help clients identify and mitigate vulnerabilities in their IT infrastructure. We view VM as a space poised for high-single-digit growth over the next few years, thereby providing Qualys with an additional uplift as demand for its products is expected to remain robust. We believe the company has built a narrow economic moat by developing a sticky product portfolio.

We are maintaining our $155 fair value estimate for narrow-moat Qualys after the firm kicked off fiscal 2024 with strong financial results that were mostly ahead of our above-consensus estimates. We remain impressed by Qualys’ high-quality security business, which delivers strong profitability along with top-line growth in the teens. While we view most of the cybersecurity spending consolidation as benefiting larger vendors such as Palo Alto Networks, CrowdStrike, Fortinet, and Zscaler, we believe Qualys is well positioned to serve a variety of security needs for its small and medium business customer base. Its wide array of security solutions spans vulnerability management to compliance, allowing the firm access to different nodes of a client’s security infrastructure, thereby making its offerings stickier. With the shares trading down after hours, we view Qualys as fairly valued.

We view Qualys as a strong cybersecurity vendor focused on providing cloud-based security and compliance solutions to its clients. The firm’s primary solutions revolve around vulnerability management, or VM, and are designed to help clients identify and mitigate vulnerabilities in their IT infrastructure. We view VM as a space poised for high-single-digit growth over the next few years, thereby providing Qualys with an additional uplift as demand for its products is expected to remain robust. We believe the company has built a narrow economic moat by developing a sticky product portfolio.

We raise our fair value estimate for narrow-moat Qualys to $155 from $143 after the firm closed out 2023 with a strong set of financial results. While the firm’s initial outlook for 2024 was lower than our prior estimates, we still view a path for Qualys to maintain a low teens revenue growth profile over the next five years while increasing its profitability as it scales. We remind investors that while the company’s top-line expansion is below that of other higher-growth security peers, Qualys’ margin profile is among the best in our security coverage. From a longer-term perspective, we believe Qualys is well-positioned to serve a variety of cybersecurity needs for its small and medium business-leaning customer base. The firm’s cybersecurity capabilities range from vulnerability management to compliance-related security solutions. We believe this breadth of offerings can provide Qualys with further revenue expansion opportunities within its installed base and help entrench its solutions within a client’s IT stack. The firm’s shares traded down after hours, and we view them as fairly valued after our fair value increase.

We view Qualys as a strong cybersecurity vendor focused on providing cloud-based security and compliance solutions to its clients. The firm’s primary solutions revolve around vulnerability management, or VM, and are designed to help Qualys’ clients identify and mitigate vulnerabilities in their IT infrastructure. We view VM as a space poised for high single-digit growth over the next few years, thereby providing Qualys with an additional uplift as demand for its products is expected to remain robust. As Qualys competes within the space going forward, we believe the firm has built out a narrow economic moat by developing a sticky product portfolio.

We are raising our fair value estimate for narrow-moat Qualys to $143 from $135 after the firm finished its third quarter with strong sales and profitability. Much like prior quarters, we were impressed with the firm’s emphasis on driving profitable growth as it navigates a tricky macroeconomic environment. We continue to view Qualys as well positioned to serve a variety of security needs faced by its clients, which are typically small and midsize businesses. With the firm expanding solutions beyond its core vulnerability management offering, we view this expansion positively and think that it will provide Qualys with more upselling/cross-selling opportunities in the future. The firm’s shares traded slightly down after-hours and we view them as fairly valued after our fair value estimate increase.

We view Qualys as a strong cybersecurity vendor focused on providing cloud-based security and compliance solutions to its clients. The firm’s primary solutions revolve around vulnerability management, or VM, and are designed to help Qualys’ clients identify and mitigate vulnerabilities in their IT infrastructure. We view VM as a space poised for high single-digit growth over the next few years, thereby providing Qualys with an additional uplift as demand for its products is expected to remain robust. As Qualys competes within the space going forward, we believe the firm has built out a narrow economic moat by developing a sticky product portfolio (as evidenced by the firm’s strong gross and net retention metrics).

We are raising our fair value estimate for narrow-moat Qualys to $135 from $115 after the firm closed out the second quarter of fiscal 2023 with results ahead of our estimates. We were particularly impressed by Qualys’ laser focus on profitability, with the firm’s adjusted margin for the quarter and guidance for fiscal 2023 well ahead of our prior estimates. We believe that during a period of macroeconomic uncertainty, the emphasis on profitability is a sound strategy. From a longer-term perspective, we believe Qualys is well positioned to serve a variety of cybersecurity needs for its small and medium business-leaning customer base. The firm’s cybersecurity capabilities range from vulnerability management to compliance-related security solutions. We believe this breadth of offerings can provide Qualys with further revenue expansion opportunities within its installed base and help entrench its solutions within a client’s IT stack. With shares trading up afterhours, we view Qualys as fairly valued following our fair value increase.

We view Qualys as a strong cybersecurity vendor focused on providing cloud-based security and compliance solutions to its clients. The firm’s primary solutions revolve around vulnerability management, or VM, and are designed to help Qualys’ clients identify and mitigate vulnerabilities in their IT infrastructure. We view VM as a space poised for high single-digit growth over the next few years, thereby providing Qualys with an additional uplift as demand for its products is expected to remain robust. As Qualys competes within the space going forward, we believe the firm has built out a narrow economic moat by developing a sticky product portfolio (as evidenced by the firm’s strong gross and net retention metrics).

We are maintaining our $115 fair value estimate for narrow-moat Qualys after the firm reported strong first-quarter financial results to kick off 2023. Sales and earnings marginally exceeded our prior estimates as demand for Qualys’ solutions persisted despite the tough macroeconomic backdrop. We believe Qualys’ financial results, when juxtaposed with the commentary by other cybersecurity vendors, indicate that despite heightened budget scrutiny, customers are continuing to spend on cybersecurity. With the shares up after the release, we believe that the market is accurately valuing Qualys’ business. For investors seeking exposure to high-quality cybersecurity names, we’d point to wide-moat platform vendor Palo Alto Networks and narrow-moat endpoint security leader CrowdStrike, both of which are Qualys’ competitors and trade at a discount to our fair value estimate.

We are initiating coverage of Qualys with a fair value estimate of $115 per share, narrow economic moat rating, stable moat trend rating, and Very High Uncertainty Rating. We currently view shares as fairly valued and trading in 3-star territory.

We view Qualys as a strong cybersecurity vendor focused on providing cloud-based security and compliance solutions to its clients. The firm’s primary solutions revolve around vulnerability management, or VM, and are designed to help Qualys’ clients identify and mitigate vulnerabilities in their IT infrastructure. We view VM as a space poised for high single-digit growth over the next few years, thereby providing Qualys with an additional uplift as demand for its products is expected to remain robust. As Qualys competes within the space going forward, we believe the firm has built out a narrow economic moat by developing a sticky product portfolio (as evidenced by the firm’s strong gross and net retention metrics).