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Tenable (NASDAQ:TENB) Q3 Sales Beat Estimates, Stock Soars


Full Report / October 26, 2021
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Cybersecurity software maker Tenable (NASDAQ:TENB) beat analyst expectations in Q3 FY2021 quarter, with revenue up 23.4% year on year to $138.6 million. Guidance also exceeded expectations with next quarter revenues guided to $144 million, or 1.39% above analyst estimates. Tenable made a GAAP loss of $16.2 million, down on its loss of $5.85 million, in the same quarter last year.

Tenable (TENB) Q3 FY2021 Highlights:

  • Revenue: $138.6 million vs analyst estimates of $134.6 million (3.01% beat)
  • EPS (non-GAAP): $0.07 vs analyst estimates of $0.02 ($0.05 beat)
  • Revenue guidance for Q4 2021 is $144 million at the midpoint, above analyst estimates of $142 million
  • Free cash flow of $18.4 million, up 23% from previous quarter
  • Gross Margin (GAAP): 80.4%, down from 82.7% same quarter last year

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.

Tenable’s software scans all computers, servers and other devices on their customer’s network and finds vulnerabilities that can be exploited by malware or hackers, like computers that haven’t had patches installed or unsecured wifi. It then helps companies understand how severe the vulnerabilities are, alerts them if new ones appear and guides them through removing them.

The demand for cybersecurity is growing as more and more businesses are moving their data and processes into the cloud and are becoming exposed to attacks and malware. Employees working remotely have also made it harder for companies to keep their networks secure, thereby increasing demand for software that helps protect from breaches.

Cybersecurity is a competitive space and while Tenable is a leader in vulnerability assessment, it faces competition from companies like Qualys (NASDAQ:QLYS), Rapid7 (NASDAQ:RPD) and CrowdStrike (NASDAQ:CRWD).

Sales Growth

As you can see below, Tenable's revenue growth has been strong over the last year, growing from quarterly revenue of $112.2 million, to $138.6 million.

Tenable Total Revenue

This quarter, Tenable's quarterly revenue was once again up a very solid 23.4% year on year. On top of that, revenue increased $8.4 million quarter on quarter, a solid improvement on the $7.07 million increase in Q2 2021. Happily, that's a slight re-acceleration of growth.

Analysts covering the company are expecting the revenues to grow 18% over the next twelve months, although estimates are likely to change post earnings.

Profitability

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 is left after paying for servers, licences, technical support and other necessary running expenses was at 80.4% in Q3.

Tenable Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.80 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still a great gross margin, that allows companies like Tenable to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Tenable's Q3 Results

With a market capitalization of $5.64 billion Tenable is among smaller companies, but its more than $651.8 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

It was good to see Tenable outperform Wall St’s revenue expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 6.68% on the results and currently trades at $55.2 per share.

Is Now The Time?

When considering Tenable, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think Tenable is a solid business. Its revenue growth has been solid. On top of that, its impressive gross margins are indicative of excellent business economics, and its strong free cash flow generation gives it re-investment options.

Tenable's price to sales ratio based on the next twelve months is 9.2x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. There are definitely things to like about Tenable and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

The Wall St analysts covering the company had a one year price target of $60.5 per share right before these results, implying that they saw upside in buying Tenable even in the short term.

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