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May 4, 2018, 7:23 a.m. EDT

Carbon Black IPO: 5 things to know about the cloud-based cybersecurity company

Security company prices IPO at high end of revised target range

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By Wallace Witkowski, MarketWatch


Carbon Black

Cybersecurity company Carbon Black Inc. priced its initial public offering at the high end of its already elevated range late Thursday, and is looking to be the next big IPO in a year that’s seen a big revival in tech startups going public — especially those that are focused on cloud-based product offerings.

The company priced its shares at $19 apiece and is offering 8 million shares with an added 1.2 million shares to underwriters like Morgan Stanley and J.P. Morgan and others to cover overallotments, valuing the company at up to $1.27 billion.

On Wednesday, Waltham, Mass.-based Carbon Black  hiked its initial public offering pricing to a range of $17 to $19, up from its previous range of $15 to $17 a share, according to the company’s most recent Securities and Exchange Commission filing.

The company is turning around its IPO in less than a month’s time, having first filed on April 9.

Carbon Black plans to trade on the Nasdaq under the symbol “CBLK.” Morgan Stanley and J.P. Morgan are listed among the underwriters.

Here’s what you need to know:

Read: The tech IPO market is back, thanks to boring, old cloud-software companies

Carbon Black is focused on next-generation endpoint security

Carbon Black is going public as many businesses are trying to make the transition to the cloud from legacy systems. For security, that means a transition from corporate network-based security, where the network itself was the walled-off perimeter that needed to be protected from unauthorized access, to an “endpoint”-based approach, where often thousands of mobile and virtual devices from multiple locations are communicating with a corporate network, which is either based in a cloud-computing service or is a hybrid of a cloud service and legacy network.

The company sets itself apart from other endpoint security providers in that it is scanning a customer’s unfiltered data activity for threats, rather than a “filtered” approach, where samples of data are collected to search for possible threats. To support this approach, the company said it uses proprietary technology to compress and handle those unfiltered data flows and uses machine learnings for analysis. Additionally, Carbon Black bases this on an open architecture designed to integrate with a customer’s other security products.

Sales and marketing are still the company’s largest expenses

In 2017, sales and marketing expenses accounted for more than 66% of revenue, slightly lower than the 70% in 2016, and 78% in 2015. While that ratio is going down, Carbon Black said it plans to use proceeds “to invest further in our sales and marketing activities to grow our customer base, to fund our research and development efforts to enhance our technology platform and product functionality, and to pay anticipated general and administrative expenses.”

So far, it appears sales and marketing efforts have paid off, as Carbon Black has more than doubled its customer base in two years, with the bulk of that growth being in the cloud. In its SEC filing, the company claimed 3,739 customers at the end of 2017, up from 1,774 at the end of 2015, adding:

We have experienced strong growth in the number of customers who purchase our cloud-based solutions, with 49 customers in 2015, 398 customers in 2016 and 1,605 customers in 2017 purchasing our cloud-based solutions.
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