Tenable (NASDAQ:TENB) Surprises With Q3 Sales But Stock Drops On Weak Guidance

Jabin Bastian /
2023/11/01 4:14 pm EDT

Cybersecurity software maker Tenable (NASDAQ:TENB) reported Q3 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 15.3% year on year to $201.5 million. The company also expects next quarter's revenue to be around $206 million, slightly below analysts' estimates. Turning to EPS, Tenable made a non-GAAP profit of $0.23 per share, improving from its profit of $0.15 per share in the same quarter last year.

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Tenable (TENB) Q3 FY2023 Highlights:

  • Revenue: $201.5 million vs analyst estimates of $198.4 million (1.57% beat)
  • EPS (non-GAAP): $0.23 vs analyst estimates of $0.18 (24.6% beat)
  • Revenue Guidance for Q4 2023 is $206 million at the midpoint (small miss)
  • Free Cash Flow of $40.3 million, up 45.6% from the previous quarter
  • Gross Margin (GAAP): 77.3%, in line with the same quarter last year

"We are pleased with our execution in the quarter, which included better-than-expected earnings and unlevered free cash flow," said Amit Yoran, Chairman and CEO of Tenable.

Founded in 2002 by three cybersecurity veterans, Tenable (NASDAQ:TENB) provides software as a service that helps companies understand where they are exposed to cyber security risk and how to reduce it.

Vulnerability Management

The demand for cybersecurity is growing as more and more businesses are moving their data and processes into the cloud, which along with a major increase in employees working remotely, has increased their exposure to attacks and malware. Additionally, the growing array of corporate IT systems, applications and internet connected devices has increased the complexity of network security, all of which has substantially increased the demand for software meant to protect data breaches.

Sales Growth

As you can see below, Tenable's revenue growth has been strong over the last two years, growing from $138.7 million in Q3 FY2021 to $201.5 million this quarter.

Tenable Total Revenue

This quarter, Tenable's quarterly revenue was once again up 15.3% year on year. We can see that Tenable's revenue increased by $6.49 million in Q3, which was roughly the same growth rate observed in Q2 2023. This steady quarter-on-quarter growth shows that the company can maintain its paced growth trajectory.

Next quarter's guidance suggests that Tenable is expecting revenue to grow 11.6% year on year to $206 million, slowing down from the 23.9% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 13.7% over the next 12 months before the earnings results announcement.

Our recent pick has been a big winner, and the stock is up more than 2,000% since the IPO a decade ago. If you didn’t buy then, you have another chance today. The business is much less risky now than it was in the years after going public. The company is a clear market leader in a huge, growing $200 billion market. Its $7 billion of revenue only scratches the surface. Its products are mission critical. Virtually no customers ever left the company. You can find it on our platform for free.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Tenable's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 77.3% in Q3.

Tenable Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.77 left to spend on developing new products, sales and marketing, and general administrative overhead. Tenable's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity. It's also comforting to see its gross margin remain stable, indicating that Tenable is controlling its costs and not under pressure from its competitors to lower prices.

Key Takeaways from Tenable's Q3 Results

Sporting a market capitalization of $4.87 billion, Tenable is among smaller companies, but its more than $693 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

It was encouraging to see Tenable narrowly top analysts' revenue expectations this quarter and produce decent free cash flow. That really stood out as a positive in these results. On the other hand, its revenue guidance for next quarter missed analysts' expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The market was likely expecting more, and the stock is down 9.46% after reporting, trading at $38 per share.

So should you invest in Tenable right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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The author has no position in any of the stocks mentioned in this report.