Cyber risk management company Tenable Holdings has gone public after filing for an IPO at the end of June.
Shares initially opened at $33, up around 40% from the IPO price of $23, which was already above the company’s expectation of $20-22 per share. They then traded downward in line with the broader market to close the first day of trading at $30.25 on a volume of over 9.6 million shares out of the 10.9 million offered on Wednesday. This represents a pop of 32% on the initial share price.
The offering raised $251 million, bringing Tenable’s valuation to $2.8 billion.
As long as cybersecurity remains one of the foundational issues of our time, we believe that there will continue to be tremendous appetite in the market.
– Amit Yoran, CEO, Tenable
Underwriters, including Morgan Stanley, JP Morgan, Allen & Co and Deutsche Bank, were granted an additional 1.6 million shares to cover over-allotments.
“The strength here is it’s growing really fast, there’s lots of recurring revenue and the valuation looks reasonable,” said Kathleen Smith, a principal at Renaissance Capital. At the same time, she warned that the large amount of competitors in the cybersecurity solutions market may present a challenge to Tenable’s position, and noted that the company’s gross margins have declined somewhat following its shift to a subscription model.
Tenable is the third cybersecurity firm to go public this year, following Zscaler in March and Carbon Black in May. All three popped, with Zscaler’s share price growing by over 100% to $33 per share, while Carbon Black’s surged 26% above the IPO price to close at $23.94.
“As long as cybersecurity remains one of the foundational issues of our time, we believe that there will continue to be tremendous appetite in the market,” said Amit Yoran, Tenable’s CEO.
He went on to say: “Going public […] gives us a spot on a much larger stage to be able to tell our story, and to help the market appreciate what we can bring to the table, and so we think it’s just a fantastic opportunity for the company.”
Tyler Mathisen, interviewing him, pointed out that the company’s VC backers were also likely to have been keen for the move.
These are, by any means, sky-high valuations. Now, that must make you more cautious.
– Jim Cramer, host, Mad Money
Fortune magazine’s Robert Hackett argued that these market trends are good news for the other cybersecurity firms suspected to be preparing for an IPO, including CrowdStrike, Cylance and Tanium. Commenting on the parallel success of Tenable and fall in Facebook stock, he commented: “Investors’ enthusiasm for data-protecting businesses seems to swell even as the wrath loosed on companies that foul up amplifies.”
However, not everyone is as optimistic. As Smith points out, though the cybersecurity market is relatively new, there’s plenty of competition. At present, that’s not necessarily a problem – many cybersecurity products and services are niche, and so many CISOs end up with as many as 50 separate products in their stack. As consolidation in the market takes place though, with giants buying rivals and startups to increase the range of services they offer, the number of companies competing to sell increasingly comprehensive packages to the same pool of individuals may be an issue.
Not long ago, we discussed Mad Money host Jim Cramer’s warnings that tech IPOs may not be able to continue improving on their “sky-high valuations”, potentially leading towards mass pullback.
Whichever route the market ends up taking, it’s definitely a space worth watching.