Qualys Earnings: Top-Line Growth Concerns Outweigh Improved Profitability in the Second Quarter

We are lowering our fair value estimate for narrow-moat Qualys to $143 from $155, after the firm reported decent second-quarter results with a top-line deceleration outweighing its improved profitability. Top-line momentum showed cracks as second-quarter sales decelerated year over year, with further deceleration baked into management’s outlook for the upcoming two quarters. We attribute a portion of these top-line wobbles to vendor consolidation, with customers increasingly opting for more solutions from larger vendors, putting smaller players like Qualys in a tough spot. With shares dropping after hours, we view Qualys as fairly valued relative to our updated fair value estimate.