There is no magic formula (contrary to popular belief) when it
comes to generating new ideas. I like to attend a few conferences
per year to open my eyes to previous unknowns. They can be quite
tedious, but every once in a while you pick up an idea or theme
worthy of exploring further. I recently attended a Street Tech
Conference where Checkpoint (
) presented and answered questions regarding the industry
landscape. The Q&A quickly turned to Imperva (
competition in their particular security niche. I became more
interested when I found out that the co-founder of Checkpoint
started Imperva, so I started exploring.
What does it do?
Imperva is an independent platform solution that works with
multiple databases to protect high-value business data. The idea is
that enterprises can segment data in either traditional or virtual
Imperva is a pioneer and leader of a new category of data
security solutions focused on providing visibility and control
over high-value business data across critical systems within the
is its product. However, the last line of its description from the
filing had me intrigued.
We also offer on-demand, cloud-based security services which
we believe provide cost-effective web application security.
Imperva hasn't been picked up by the research arms of the IPO
underwriters yet (i.e. it's not on the generalists' radar yet).
JPM, DB, RBC, PacCrest, and Lazard will all likely initiate with
Buy/Hold recommendations and targets above the last trade. It seems
likely that $35 becomes the consensus target, but as we know, this
is largely irrelevant. The market cap is small here - less than
$600M, and I believe there may be runway.
What is the Total Addressable Market?
Again from the filing:
According to an International Data Corporation ("IDC") report
dated February 2011, worldwide spending on IT security products
is expected to grow to $38 billion in 2014 from $27 billion in
2010. We believe that only a small fraction of this is spent
today on protecting high-value business data in the data center.
As a result, we believe data security represents a significant
and growing opportunity because the current level of spending to
protect high-value business data must dramatically increase in
response to the magnitude of the threats to business data.
The answer is that it's hard to quantify at this point. An
investor has to take a stance on whether or not the security
spending going forward will be more or less than it is today, and
if this could be an emerging segment or not. I find it hard to take
the under on either of these in today's environment, given the
focus of IT managers on security. There is a
dollar market here. Assuming 0.5 % of today's $27B security spend
is allocated to high-value data, it could be a $1B+ opportunity
already. Not to mention IMPV doesn't have any serious open source
- Citrix (
), Fortinet (
), Checkpoint (
), F5 Networks (
), IBM (IBM), McAfee, Inc. (Intel (INTC)), Oracle Corporation
(ORCL), and Symantec (SYMC).
The competition in security is clearly formidable. However, it's
hard to believe that a co-founder of Checkpoint would set out to
build a company that could easily be replicated. IMPV has a niche
business, but this could clearly change.
IMPV's revenue has grown at a CAGR of 46% over the last 3 years
and they maintain gross margins of 77%. However, I look at Imperva
from a Market Cap standpoint for the time being. The company is not
profitable, but given that SuccessFactors (SFSF) was just purchased
at 10x's revenue by SAP - I don't think a $600M Market Cap on LTM
revenue of $70+M is unreasonable. SFSF wasn't growing at 46% over a
3 year period. This is one to watch.
Imperva has been added to our Watch List - look for follow up
after the Street initiates.
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours.
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