Why Imperva Shares Secured a Big Rally

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of enterprise data security and support solutions company Imperva (Nasdaq: IMPV  ) spiked as much as 23% today after reporting its second-quarter earnings results.

So what: For the quarter, Imperva used a 30% increase in revenue to $24.6 million to reduce its loss per share to just $0.02. Wall Street expectations for the quarter had called for Imperva to lose $0.05 per share on revenue of $23.57 million. In addition to these strong results, Imperva guided its third-quarter loss expectations to a narrower range than analysts had been looking for, expecting EPS losses of $0.02-$0.03 versus the loss of $0.04 forecast by the Street.

Now what: High-margin service revenue was the notable bright spot, rising 41% with subscription revenue more than tripling. But when push comes to shove, Imperva isn't profitable as of yet and it's trading at more than 100 times forward earnings. In the past couple of weeks, I've highlighted plenty of data and firewall security companies that could alternatively be purchased for a fraction of the valuation that Imperva is trading at.

For instance, Check Point Software Technologies (Nasdaq: CHKP  ) is seeing consistent recurring revenue gains from its highly addictive upgradable software options. On the value front, Symantec (Nasdaq: SYMC  ) , the maker of Norton AntiVirus, and AVG Technologies (NYSE: AVG  ) , a provider of open-source antivirus software that makes money from encouraging upgrades, have found their way into my good graces with low P/E ratios and a wide moat of potential customers. If you want growth, there's Palo Alto Networks (Nasdaq: PANW  ) , which is doubling revenue year over year and also recently turned profitable. Its software is also primarily self-managing and geared toward cloud computing, an area where a lot of investment money is now flowing.

The point is, Imperva may not be a "bad" company, but there are definitely better choices out there in data security.

Craving more input? Start by adding Imperva to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Check Point Software Technologies. Motley Fool newsletter services have recommended buying shares of Check Point Software Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (1)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 10, 2012, at 4:50 PM, JimmyJohnner wrote:

    Interesting article, however the author shows themselves grossly uneducated about Imperva's products. Its Web Application Firewall is only one small component of a much larger product. One which runs from access to the network, down to every aspect of a company's business as pertains data. Imperva products data at its source, guarding and auditing access to databases, file servers (remember wikileaks), and SharePoint. It allows customers to block access based on customizable rules. It offers fraud protection services to customers including banks. Protects against bot attacks and Denial of service, and much more. A firewall only protects access into a company's network, doesn't do anything once you have been infiltrated or have disgruntled employees wreaking havoc. Imperva does, and does a very good job of it. And that why it is a long term value proposition. I recommend that the author do a bit more research if he wants to speak authoritatively about the company's technology.

  • Report this Comment On August 11, 2012, at 4:19 AM, TrackUltraLong wrote:

    JimmyJohnner,

    It has nothing to do with the product... as I said, it's not a "bad" company... it has everything to do with its valuation relative to its peers.

    TMFUltraLong

  • Report this Comment On August 11, 2012, at 12:05 PM, JimmyJohnner wrote:

    If you were speaking strictly of forward valuation I might be able to agree with you to a degree. But you explicitly compared them with companies that more or less only do firewalls and VPNs, and not much more.

    Imperva has a firewall, it has a data activity monitor, it tracks user rights, it detects web fraud, it scans servers and identifies vulnerabilities, and it tracks users coming in through its firewall and accessing data in company databases, with the ability to block them. All together a package that no other product on the market offers.

    Due to this fact, its potential market is much larger that appears to the naked eye, because there really isn't any competitor out there that can provide this same overall solution.

    You said those other companies are its peers. That would be like saying that the Firestone tire company is a peer of one of the big auto makers. It simply isn't accurate. One company makes a single product, the other makes a larger product in which that single product is a component, even if they make the component too.

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