2013 was undoubtedly a year of hot initial public offerings, with many companies in the technology space debuting to much fanfare, and in many cases, huge opening day stag profits. The most hyped of these was Twitter (TWTR) but a solid pipeline of floats throughout the year including FireEye (FEYE) and Voxeljet (VJET) both of which were covered here, supported considerable IPO strength in 2013. Amongst all the coverage of new stocks in broker reports and the financial press there is a tendency to forget about the most exciting offerings from the year before. This is even if they are further developed and closer to profitability than the new kids on the block.
One such case is web and cloud based security provider Imperva (IMPV Securing Profits For Investors), which debuted three years ago and finished the year as the top performing IPO for 2011. It is possible that a strong business model and bright prospects for the company have been overlooked in 2013’s avalanche of new stock offerings. It may well be that Imperva offers the chance for greater long-term profits especially with the last closing price of $50.35 as of January 8th, 2014. At the end of this report it will be possible to determine whether Imperva is securing profits for investors.
Understanding The Business
The emergence of the web based economy in the last decade, and the acceleration of its adoption by individuals and businesses has brought to light a number of opportunities for technology companies operating in the space. One of the simplest to grasp is that of gatekeeper or security guard to the data and information generated that facilitates this emergent digital economy.
High profile breaches such as those that felled the worldwide Sony Entertainment Network and the more recent holiday season raid on the personal information of 40 million Target credit card holders illustrate that data theft is a pressing concern.
Imperva sets out to ease this concern. As a company their core belief is that a companies most valuable asset is data. Where before organizations had reams of data stored on paper and under lock and key, now the world is much more geared toward virtual storage and cloud based applications. The convergence of the big data phenomenon with this reality means that companies now generate and retain customer data, including financial information, intellectual property and internal communications – all of which needs protecting from hackers.
Founded in 2002, Imperva (IMPV Securing Profits For Investors) is a new generation security force that develops and markets products that offer clients real time security for their sensitive data in concert with automated protection suites. The target is to protect high value data, and therefore the companies cites it’s client list as including banks, retailers, hospitals and insurance companies as well as several levels of governmental agencies, including state and federal.
Metrics and Measures
The listed financial history of the company as shown by company filings and quarterly releases display an encouraging picture of a technology company steadily moving toward profitability. In the third quarter of 2013 there was a lift of 33% on the quarterly revenue, up to a healthy $35.1 million.
Of particular note were two items. The first was that deals which were worth more than $100,000 increased substantially by 39%, showing that the product offering is strong enough to chase higher value clients with greater data security budgets. The second was the 129% jump in subscription revenue. This metric is a particularly strong tick in the positives column as it allows Imperva to earn predictable, stable annuity style revenue to create a solid foundational income stream to drive the profitability of the business. While the total contribution to overall revenue is still small, the growth of this business line is a positive sign that differentiates the company from its peers.
Of some concern was the dip into a net profit figure after a small profit in the previous corresponding quarter of 2012, however, the loss was negligible (less than $100,000). The loss can be viewed in light of the very health viagrarxhere.com cash position of cash and cash equivalents of $106.8 million, placing it in a sound financial position.
The Investment Case
Imperva is undoubtedly a growth story, and one that is gaining momentum. For example, in the last reported quarter there were 148 new contracts signed for services. This was part of a stellar effort on the part of the sales and marketing team who managed to snare 481 new accounts for the year to September. Another attractive part of the customer profile is that the clients are spread both geographically and by industry. Using the last disclosed numbers there are now approximately 2,700 customers in over 70 countries worldwide who use the security services provided by Imperva.
The other strong positive, as mentioned above, is the growth of higher value contracts, with close to 100 clients signing orders for products that totalled $100,000 or more, with the company earning extremely attractive margins of approximately 80% based on contracts of that size. These two strong tailwinds to the business show two very desirable traits. The first is that the model is scalable and can be marketed and sold worldwide. The second is that high value clients are comfortable in the strength and integrity of the product. This can bring considerable reputational benefits that translate to bottom line profits through a strong network and referral effect to gain new clients.
The other major positive trend in the industry is that of consolidation, as was shown by the eye watering valuation of over a billion dollars that FireEye (FEYE) attributed to takeover target Mandiant just a few days ago. It may well be that an established player identifies Imperva as a ripe target for strengthening their existing product offering, as mergers and acquisitions fire up in 2014 after a few years of relative quiet.
Imperva (IMPV Securing Profits For Investors) is a well-established company that has been growing its customer base and revenue stream consistently since listing in 2011. Importantly, it is on the cusp of profitability, and therefore much further advanced in terms of financial measures than many of its peers who listed in 2013. If the company can maintain its momentum it would likely be a strong performer going forward once the market once again becomes aware of its potential, either through a share price rally or a takeover attempt.
I hope the above information helps you in putting on profitable trades in IMPV in near future.