Cloud Security Vendor Qualys Ready for IPO

According to research firm TechNavio, the global cloud security market is projected to grow at an estimated annual rate of 41% from 2010 through 2014 to reach $963.4 million. In 2010, the cloud security market accounted for 2% of the overall IT security software market. That share is also projected to grow to 4% by the year 2014. While the market is dominated by big players such as TrendMicro, McAfee, and CA Technologies, which together account for 27%-36% of the market share, smaller players are beginning to make their presence felt.

Qualys’s Financials
One such player is Qualys Inc., based in Redwood Shores, California. Qualys filed for its $100 million IPO last week. The company is known for its suite of software-as-a-service products that help organizations identify IT security risks, manage compliance, and protect IT infrastructure from cyber attacks. Qualys has been around for a while and was founded in 1999 by current CEO and serial entrepreneur Philippe Courtot, whom I interviewed a few years ago. Qualys was among the first to enter the web security market with its product QualysGuard, which was launched in December 2000.

Since then, Qualys has come a long way. The company caters to more than 5,700 organizations spread across 100 countries worldwide. It earns revenues primarily through an annual subscription–based model. Revenues have grown steadily from $57.4 million in 2009 to $65.4 million in 2010 and to $76.2 million in 2011. For the quarter ended March 2011, Qualys reported revenues of $21.2 million, which was a 20% increase over the previous year’s $17.7 million. Profits, however, have been slightly slower to grow. Qualys ended 2009 with net income of $0.9 million. This amount fell to $0.4 million in 2010 and managed to grow to $2.0 million last year. Increasing sales and marketing expenses turned the company’s first quarter of 2012 into a loss-making quarter. The quarter ended with a net loss of $0.3 million compared with earnings of $1.0 million last year.

To date, Qualys has received funding from investors that include ABS Ventures, GRP Partners, the Hewlett-Packard Company, Trident Capital, and VeriSign. Its biggest shareholders are its CEO, who owns 39%, and Trident Capital, which own 27%.

Qualys’s Expanding Product Lineup
Qualys has been investing sigificantly in developing their product portfolio. Earlier this quarter, they launched a new service, Zero-Day Risk Analyzer, which is a part of the QualysGuard Cloud Platform. A zero-day attack is a threat that exploits computer application vulnerabilities unknown to others or the software developer. These attacks are used or shared by attackers even before the developer of the target software knows about the vulnerability. Malware writers exploit zero-day threats to compromise systems or steal confidential data such as banking passwords and personal identity information. Qualys’s new service will enable customers to analyze zero-day threats to estimate impact of a possible attack. The tool comes with features such as customizable email notifications on new zero-day and critical threats, actionable data with estimates about systems at risk, and risk modeling to help mitigate risks.

It also released a new enterprise-focused malware detection service that helps organizations scan their web sites for malware infections, receive alerts, gather and analyze data, and identify and remove malware from their web sites. The earlier edition of the Malware Detection Service was focused on SMBs. The new version will help cater to bigger organizations and comes with features such as improved scalability, a simpler user interface, centralized management and reporting, and an advanced remediation and analysis tool.

As part of its large enterprise focus, Qualys launched its hierarchical Dynamic Asset Tagging system that will help organizations manage and maintain an inventory of enterprise assets. The asset tagging service enables organizations uses a scanning system that eliminates manual intervention and can be used for real-time asset management, including the ability to add role-based security to assets and assigning multiple hierarchies to assets to create a more robust tracking mechanism.

Qualys has not divulged the timeline according to which it plans to list on the stock exchange. It plans to trade under the ticker QLYS and has hired J.P. Morgan Securities and Credit Suisse Securities as bookrunners for the listing.