Category: Internet Stocks
SecureWorks: Security Hybrid
SecureWorks (NASDAQ: SCWX), based in Atlanta, Georgia, is the newest addition to our Battle Road IPO Review Software coverage. The company provides managed IT security services and subscription software to over 4,300 companies in 59 countries. For the fiscal year ending January 31, 2017, Consensus estimates call for revenue of $425 million (up 25 percent from the prior year) and a loss per share of $0.32. For FY’18, revenues are expected to rise by 20 percent to $509 million, while its loss is expected to narrow to $0.10 per share.
SecureWorks priced its 8 million Class A share IPO at $14 per share on the NASDAQ on April 21, 2016, below an expected range of $15.50 to $17.50 per share, thus becoming the first technology IPO of 2016, ending a significant drought. The company is a spin out from Denali Holdings (formerly Dell). Denali continues to own 70 million Class B shares, along with 98 percent of the voting rights. The IPO, which raised over $100 million for the company was led by Bank of America Merrill Lynch, Morgan Stanley, Goldman Sachs, J.P. Morgan, and 13 other securities underwriters-investment banks. At a recent share price of $14, SCWX’s market cap is roughly $1.3 billion.
Founded in 1999, and acquired by Dell in 2011, SecureWorks is something of a hybrid between a software company, and an IT services company. SecureWorks offers a broad range of managed security services and software solutions designed to protect companies against security threats, with an emphasis on early warning and detection of suspicious activity stemming from security breaches, the introduction of malware, and threats from hackers. The company’s more than 4,300 customers are represented across a wide range of industries, including banks, telecom service provers, healthcare services and product companies, and retail chains. Bank of America was its largest customer last year, accounting for nine percent of revenue.
In the most recent quarter, SecureWorks continued to improve its gross margin, which reached 50 percent from 43 percent last year, assisted by the growing percentage of revenues driven by subscriptions, which totaled more than 80 percent last year. At the same time, the company narrowed its operating loss from $26 million in the prior year, to $19 million. Post IPO SecureWorks has a strong balance sheet with $124 million in cash and no debt. SCWX trades in the second half of our Battle Road IPO Review Software sector coverage.
Mimecast: Keeping Corporate Email Safe from Attack
Founded in 2003 by Peter Bauer, currently CEO and Chairman, and Neil Murray, currently Chief Technology Officer, and based in London, the UK, Mimecast (NASDAQ: MIME) is a leader in cloud-based email management, including data security and archiving. The company serves over 18,000 customers in a broad range of industries, and added 1,800 new customers in the recently concluded March 31 quarter. Consensus estimates call for revenue of $173 million in fiscal year 2017 (ending March 31), which implies a 22 percent increase over the prior year, while EPS estimates suggest a loss of $0.05 per share, which would compare to a loss of $0.07 in FY’2016.
Mimecast debuted on the NASDAQ on November 19, 2015 in a 7.8 million share IPO priced at $10 per share that enabled the company to raise about $70 million. The deal was led by Goldman Sachs, Barclays Capital, Jeffries, RBC Capital Markets, and Oppenheimer and Company. At a recent share price of $9, Mimecast’s market cap is roughly $475 million.
Mimecast offers a wide range of archiving and data security services that enhance corporate email systems with additional features for storing and retrieving emails, as well as an additional layer of protection for corporate email users, such as those running Microsoft Office 365. Roughly 60 percent of revenue is derived from channel partners, rather than a direct sales force. The company’s customers are based principally in three countries, with the U.K. accounting for 42 percent of sales, the US 38 percent, and South Africa 19 percent.
The company’s email archiving and threat protection services are derived from a broad range of industries, including legal services (17 percent), professional, scientific and technical services (14 percent), manufacturing (13 percent), and finance and insurance (12 percent), with no customer accounting for more than one percent of sales. The company claims a greater than 90 percent plus retention rate among customers for its services. Mimecast competes against a broad range of competitors, including Microsoft through its Exchange Server offering, Barracuda Networks (NYSE: CUDA), Symantec (NASDAQ: SYMC), and Proofpoint (NASDAQ: PFPT).
Mimecast’s net cash position post IPO is $126 million, and the company is generating cash from operations. To learn more about how Mimecast screens relative to its software peers, please contact Battle Road Research.