We Think Qualys Has a Competitive Edge

We are initiating coverage of Qualys QLYS 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 the shares as fairly valued, trading in 3-star territory.

We believe Qualys is well positioned to serve a variety of cybersecurity needs for its small- and medium-size business 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 in its installed base and help entrench its solutions within a client’s IT stack.

Over the next five years, we see Qualys’ revenue growing at a 12% compound annual rate. Qualys should continue landing new clients and expanding revenue from existing ones at a moderate pace. We believe these expansion opportunities will stem from Qualys’ platform-based sales motion that centers its breadth of offerings as a key selling point to clients looking to expand their usage of Qualys’ solutions.

While we are positive about Qualys’ growth and margin expansion opportunities, we also see a tough competitive landscape for the firm. Qualys competes with larger, more capitalized vendors such as CrowdStrike and Palo Alto Networks as well as smaller private players like Axonius and Flexera. Despite the competition, we are impressed by Qualys’ ability to produce solid retention metrics, showing the stickiness of its customer base.

Overall, we believe Qualys’ strategy of developing a variety of cybersecurity solutions is a sound one as it allows the firm to upsell existing clients while improving its sales motion with newer customers. While the competitive landscape seems daunting, we think Qualys’ sticky product portfolio, combined with its years of cybersecurity expertise, can help it navigate this landscape and produce solid shareholder returns in the process.