Why Qualys (QLYS) Stock Is Nosediving
What Happened:
Shares of cloud security and compliance software provider Qualys (NASDAQ:QLYS) fell 10.1% in the morning session after the company reported fourth-quarter results and gave full-year revenue guidance that was below expectations, suggesting a slowdown in demand. Revenue was also roughly in line during the quarter, led by softness in the international market, with revenue in the segment falling below expectations. Free cash flow declined significantly compared to recent quarters, though it came in ahead of consensus. EPS also beat expectations during the quarter.
Overall, this was a weaker quarter for Qualys. The market likely expected more as optimism soared, with the stock gaining 6% a day before reporting earnings after the company pushed its earnings data forward to Feb 7, 2024 (the company was initially set to report earnings on Feb 12, 2024).
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What is the market telling us:
Qualys's shares are somewhat volatile and over the last year have had 5 moves greater than 5%. But moves this big are very rare even for Qualys and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 3 days ago, when the company dropped 11% on the news that Microsoft will be replacing a cybersecurity solution provided by Qualys with its own. Wall Street analyst Hamza Fodderwala added, "Microsoft has also been cited as a large customer for Qualys over the years, and though the announcement does not indicate a termination of their relationship with Qualys as a customer, we see risk of Microsoft having its own [vulnerability management] solution leading to a potential downsizing or replacement of its existing Qualys deployment."
With Microsoft being one of the largest tech companies in the world, the prospect of losing such a big customer could significantly impact Qualys's business, including revenue, especially if its security solutions are widely deployed across Microsoft's network.
Qualys is down 11.6% since the beginning of the year, and at $169.66 per share it is trading 17.6% below its 52-week high of $205.89 from December 2023. Investors who bought $1,000 worth of Qualys's shares 5 years ago would now be looking at an investment worth $1,796.
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