Will QLYS's Strategy Shift Pay Off? Analyst Eyes The Potential Amid Elevated Competitive Risks

Stephens analyst Brian Colley initiated the coverage on Qualys, Inc. QLYS with an Equal-Weight rating and price target of $145.

QLYS is a leader in vulnerability management (VM) with one of the most substantial profitability profiles in software, the analyst notes. 

In recent years, QLYS has expanded its VM capabilities with its VMDR offering while also entering large markets like EDR, XDR, and CNAPP, Colley added.

While expansion into new markets has significantly expanded QLYS's TAM, growth has lagged behind security peers as the company has placed a greater emphasis on profitability, the analyst adds.

QLYS believes it can accelerate growth to 20%+ longer-term and plans to ramp up S&M investment to get there. 

While the analyst sees multiple levers to improve growth, a near-term acceleration appears unlikely, given QLYS has temporarily paused new S&M initiatives as it reevaluates spending under its new CRO. 

The analyst also sees elevated competitive risks in areas QLYS is pursuing expansion.

The analyst cautioned that a slowdown in security spending/demand or prioritization of spending in other security categories over VM could negatively impact growth. 

Based on the above, the analyst forecasts Non-GAAP EPS of $4.62 in FY23, with $554 million in revenues.

For FY24, Colley projects Non-GAAP EPS of $4.88, with $617.1 million in revenue.

For FY25, the analyst sees $5.23 in Non-GAAP EPS, with $688 million in revenue. 

Price Action: QLYS shares are trading higher by 1.9% to $145.46 on the last checked Friday.