A Look At Imperva Before The Street Initiates

| About: Imperva (IMPV)

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 (NASDAQ:CHKP) presented and answered questions regarding the industry landscape. The Q&A quickly turned to Imperva (NYSE:IMPV) having zero 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 data centers.

From the IPO filing:

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 data center.

SecureSphere 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 multi-billion 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 competition.

The Competition

  • Citrix (NASDAQ:CTXS), Fortinet (NASDAQ:FTNT), Checkpoint (CHKP), F5 Networks (NASDAQ:FFIV), IBM (NYSE:IBM), McAfee, Inc. (Intel (NASDAQ:INTC)), Oracle Corporation (NASDAQ:ORCL), and Symantec (NASDAQ: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 (NYSE: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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.