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Qualys (QLYS) made its public debut on Friday. Shares of the provider of cloud security and compliance solutions ended their first day up 18% at $14.16 per share.

The public offering

Qualys's solutions enable organizations to identify risks to their IT infrastructures and help to protect their systems from cyber attacks, and achieve compliance with internal policies and external regulations. Qualys offers solutions to over 5,800 organizations in more than 100 countries.

The company sold 7.6 million shares for $12 a piece. Qualys raised $80 million in gross proceeds in the offering process. Based on the offer price of $12.00, the firm is valued at $361 million.

The offering is quite a success. The offer price is at the midpoint of the $11-$13 price range set by the firm and its bankers. The firm sold 6.7 million shares, while selling shareholders offered 875,000 shares. In total, 25% of the company's shares outstanding were offered. At Friday's closing price of $14.16, the firm is valued at $426 million.

Major banks which brought the company public were J.P. Morgan, Credit Suisse, RBC Capital Markets, Baird and Lazard Capital Markets, among others.

Valuation

Qualys operates in the fast growing cloud industry. As big customers hold more data online, and cyber attacks become more frequent, so is demand for the company's solutions. The majority of the Forbes Global 100 list is a customer, according to the company.

The company reported annual revenues of $76.2 million for 2011, up 16.5% on the year. The company reported a net income of $2.0 million, up 130% on the year before.

For the first six months of 2012, the company generated revenues of $43.4 million, up 19.9% compared to the first half of 2011. Qualys reported a net loss of $0.6 million for the period, compared to a profit of $2.2 million last year.

Qualys intends to use the raised capital for general corporate purposes, including capital expenditures, investments in research and development, and additional hiring.

The company operates with $28.5 million in cash and equivalents before the net proceeds of the offering. Gross proceeds from the offering come in at $80 million, resulting in estimated net proceeds of $72 million. As such, Qualys will operate with $100 million in cash and equivalents, valuing the operating assets at $326 million.

Based on a rough annual revenue estimate of $90 million for 2012, and excluding the generous net cash position, the market values Qualys at 3.6 times annual revenues. On the bottom line, the results will come in around zero.

Investment Thesis

The offering of Qualys has been a reasonable success. Shares were offered at the midpoint of the initial guided price range. Shares rose 18% on their first day, ending the week at $14.16. Qualys does not expect to pay a dividend soon.

Cloud-based public offerings have seen very strong returns this year. Other public offerings in the industry including Splunk (SPLK) and Palo Alto Networks (PANW) have been successful so far.

Shares of Splunk have more than doubled from their initial public offering price of $17 in April of this year, to levels around $37 at the moment. Splunk trades at an incredible 29 times 2011's annual revenues.

Palo Alto's shares have risen from their offering price of $42 in July of this year to levels of $62 at the moment. Earlier in September, shares hit a high of $73 per share. Palo Alto trades at 16 times annual revenues, for its fiscal year ending in July.

Qualys operates in a very promising long-term industry. Cloud-based solutions and cyber protection are both long-term growth industries. While the valuation of 3.6 times 2011's annual revenues does not sound cheap, especially since the firm is hardly profitable, it looks very favorable compared to some of its competitors. On the other hand, the revenue growth rate of 20% for the first six months is below growth rates reported by some of its competitors.

I would not be surprised to see Qualys have a very successful debut, with shares trading far above current levels in a couple of months, just like some of the other cloud-based public offerings this year. The company trades on a huge revenue multiple discount to some of its competitors, whose shares have been sent to the clouds by investors.

Speculative buyers could aim for a ride towards $20 per share in the coming months.

Source: Qualys - Speculative Buyers Could Drive This Recent Offering Another 50% Higher