On Wednesday, JPMorgan made an adjustment to its outlook on Qualys (NASDAQ: NASDAQ:QLYS), lowering the stock price target to $125 from the previous $152 while maintaining an Underweight rating on the shares. This decision follows Qualys' first-quarter results for 2024, which revealed revenues that were largely in line with consensus expectations, accompanied by better profitability and cash flow.
The company's first-quarter performance presented a mixed picture, with revenue meeting expectations but net dollar retention rate (NDRR) showing further deterioration. Moreover, the forecast for second-quarter revenue fell short of consensus estimates at the midpoint. Qualys experienced a slowdown in billings growth, which decelerated to a 9.4% year-over-year increase.
Management at Qualys has indicated plans to ramp up sales and marketing efforts, enhance customer success, and improve productivity. Despite these initiatives, projections suggest that operating expenses will likely grow faster than revenue, hinting at a challenging sales environment ahead. The guidance provided by the company points to a deceleration of revenue growth to high single-digit levels, along with contracting operating margins and a decline in free cash flow (FCF).
JPMorgan's commentary on Qualys' outlook acknowledges the potential for growth improvement as the company concentrates on expanding its platform and increasing sales and marketing investments.
Nevertheless, the firm has adjusted its estimates and stock price target to align with the current period results and outlook. The Underweight rating reflects JPMorgan's perspective that there are better risk-reward opportunities available within its coverage universe.
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