- Stock down 49% from peak as 2016 earnings forecast falls short
- CEO says company is 'on fire,' rout caused by broader selloff
It’s been a wild ride for Anthony Bettencourt, the chief executive officer of Imperva Inc.
In the 17 months since he took charge, the database security company’s quarterly revenue grew 70 percent, it posted its first annual profit, and shares climbed to a record $77. The stock rally, already fading, suffered a sharp correction last week after Imperva gave a 2016 earnings forecast below analysts’ estimates. That helped drive a 23 percent drop to $39.62, the worst weekly selloff in almost two years.
Imperva and peers including Fortinet Inc. and FireEye Inc. have been punished in the stock market as investors bet the high-profile data breaches that fueled security spending in 2015 have driven valuationstoo high. While corporations are still eager to arm themselves with more sophisticated tools to fight hackers, elbowing out competition and keeping up the pace of growth is coming at a steeper cost, said Andrew Nowinski, an analyst with Piper Jaffray in Minneapolis.
“We’re not seeing as much panic buying,” Nowinski, who lowered his price target for Imperva to $54 from $84 last week, said by phone. “Their revenue growth hasn’t deviated, but it’s causing them to spend more money too.”
Imperva, based in Redwood Shores, California, posted $3.5 million of profit on 2015 revenue of $234 million, up 43 percent from a year ago, the company said Feb. 3. Bettencourt, who replaced co-founder and Israeli security entrepreneur Shlomo Kramer as CEO in August 2014, raised his forecast for sales growth in 2016 to 30 percent from 25 percent.
He also said the company would have an operating loss of $7.5 million to $9.5 million in the first quarter, something investors honed in on, said Nowinski, who expected the number to be around $1.6 million.
“Lofty growth expectations and a more tepid outlook for margin expansion in 2016” will weigh on shares in the short-term, JPMorgan Chase & Co. analyst Sterling Auty, who has a neutral rating on Imperva, wrote in a Feb. 4 research note.
Competition has always been tough in the security business, and Imperva is being swept up in a broader stock market rout that has nothing to do with performance, according to Bettencourt.
“We’re on fire right now,” he said in a telephone interview. “The best thing I can do is run the business, focus on growth, focus on profit, focus on free cash flow and just continue to be a dominant vendor. I think we’ve done a pretty good job so far.”
Analysts seem to agree. They predict the stock will gain 74 percent in the next year, and 19 out of 22 recommend buying the shares, Bloomberg data show.
That’s unlikely to sway investors burned by last week’s rout, said Cory Krebs, a fund manager who oversees about $900 million, including Imperva shares, at CooksonPeirce Investment Management in Pittsburgh. It’s difficult for investors to gauge what sustainable growth will look like in the security space, and that lack of clarity will keep them away for awhile, he said.
“At the end of last year it was a $75 stock and today it’s a $40 stock -- reality lies somewhere in between,” Krebs said. “Any upward movement is likely to be met with downward selling pressure.”