Exposure Management Leadership And AI Defense Will Drive Powerful Long Term Cybersecurity Tailwinds

Catalysts

About Tenable Holdings

Tenable Holdings provides a leading exposure management platform that helps organizations proactively identify, prioritize and remediate cyber risk across modern IT, cloud, OT and identity environments.

What are the underlying business or industry changes driving this perspective?

• Rapid industry shift from reactive, post breach tools to preventative exposure management, where Tenable One already represents roughly 40 percent of new business and supports multi year deals, positions revenue growth to outpace legacy vulnerability management.
• Growing AI driven attack sophistication is forcing enterprises to adopt platforms that can see environments the way adversaries do, and Tenable's investments in AI exposure and risk based prioritization should support higher platform adoption, larger deal sizes and expanding net dollar retention.
• Expansion of the attack surface across hybrid cloud, OT and identities increases demand for unified visibility, and Tenable's 300 plus validated integrations and ability to consolidate point products are driving larger, longer term contracts that enhance recurring revenue and RPO growth.
• Strong recognition as a leader in exposure management by top analyst firms and number one market share status reinforce Tenable's competitive moat, supporting sustained new logo momentum and pricing power that can lift revenue and protect gross margins.
• Rising regulatory, public sector and critical infrastructure focus on preemptive security, combined with Tenable's entrenched U.S. federal and OT positions, should translate into durable, high quality renewal streams and incremental margin leverage as recurring revenue scales.

Assumptions

This narrative explores a more optimistic perspective on Tenable Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Tenable Holdings's revenue will grow by 9.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -3.4% today to 4.2% in 3 years time.
• The bullish analysts expect earnings to reach $53.0 million (and earnings per share of $0.43) by about December 2028, up from $-33.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $-94.9 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 127.7x on those 2028 earnings, up from -87.8x today. This future PE is greater than the current PE for the US Software industry at 31.5x.
• The bullish analysts expect the number of shares outstanding to decline by 0.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.84%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current security spending mix, where roughly 96 percent of every cybersecurity dollar is still directed to post breach detect and respond tools, may prove more durable than expected. This would limit the pace of the long term shift toward preemptive exposure management and constrain Tenable One adoption and revenue growth.
• Rising competitive intensity in cloud security and exposure management, including platform consolidation around hyperscalers and large incumbents, could pressure pricing and win rates over time. This may erode the premium deal sizes management is seeing today and compress net margins.
• The strategy of driving longer term, more complex platform contracts and heavy integration into customer environments may lengthen decision cycles and increase implementation risk in a weaker macro or public sector funding environment. This could lead to volatility in billings, remaining performance obligations and near term earnings.
• Sustained double digit growth in research and development spend to keep pace with AI driven threats and OT convergence may not consistently translate into incremental monetizable features. This could cause operating costs to rise faster than revenue and limit further expansion in operating margin and earnings.
• Dependence on U.S. federal and other highly regulated verticals exposes Tenable to policy shifts, contract delays and shutdown risk over the long term. This could periodically disrupt renewals and large new deals and create structural headwinds for revenue stability and cash flow growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Tenable Holdings is $45.0, which represents up to two standard deviations above the consensus price target of $37.79. This valuation is based on what can be assumed as the expectations of Tenable Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $29.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $53.0 million, and it would be trading on a PE ratio of 127.7x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $24.66, the analyst price target of $45.0 is 45.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.