Max Grigoryev
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Max Grigoryev in Fundamentality,

Imperva: 8.5x Revenue. Is the company overpriced?

develops, markets, sells, services, and supports cyber security solutions that protect business critical data and applications in the cloud or on premises. The company increased its market capitalization by 154% since IPO. However, the stock price lost almost 16% since mid-September.

Multiples are very high, the company seems to be overvalued, but what can we see from the operating and financial metrics? The company provides different professional services in cyber security field, sells the license products and has a subscription based revenue from cloud solutions. 

  • Number of clients

The number of clients is growing: Imperva had around 3,357 clients as of June 2014 and 4,125 clients as of June 2015, representing the 22.88% growth rate. The same growth rate in customer base the company had in 2014. So this is a good sign if the company is capable to keep the same growth rate for the number of clients. 

  • ARPA

Average revenue per client is around $23,815 for the first half of 2015 (+14% in comparison with the first half of 2014). However, the company had a serious issue with ARPA in 2014 - it dropped down by 2%. I think that ARPA growth could be a great step forward for Imperva's operations. As soon as we see such increase as of June 2015, I assume that Imperva will increase total ARPA this year. 

  • Customer acquisition cost and operating expenses

Customer acquisition cost has a multidirectional trend. It decreased as of March 2015 in comparison with the previous year, however, CAC grew up as of June 2015 vs June 2014. Another step forward is the operating cost optimization: despite the fact that the company increased CAC, Imperva decreased sales and marketing expenses as % of revenue from almost 69% to 66.5%. Moreover, product development expenses dropped down as well from 30.85% of revenue (June 2014) to 26.25% (June 2015). 

As we can see, all the operating and financial metrics show a good dynamic. However, the trading multiples are very high for the company with negative EBITDA. The graph below shows the stock price potential for different TEV/Revenue multiples (current stock price is around $60).

I think that the investors potentially will react positively for the Q3 financial results, however, fundamentally the company is overvalued. I like the business metrics, but I am not sure that this is not the highest point for the stock price.