Earlier this month, cloud services security provider Qualys (Nasdaq: QLYS) announced its third-quarter results that continued to impress the market. Qualys continues to invest in product development to gain bigger traction in the market.

Qualys’s Financials

For the third quarter of the year, Qualys’s revenues grew 13% over the year to $93.1 million, surpassing the market’s estimates by 1.2%. Net income improved to $22.7 million from $19.2 million a year ago. On an adjusted basis, EPS was $0.77 compared, ahead of the market’s forecast of $0.66 per share.

For the fourth quarter, Qualys forecast revenues of $94.2-$94.8 million with adjusted earnings of $0.39-$0.41 a share. The market was looking for revenues of $93.17 million with an EPS of $0.59 for the quarter. Qualys expects to end the year with revenues of $362.4-$363 million compared with an earlier estimate of $359-$360.5 million. It forecast the year’s EPS at $2.85-$2.87 which was marginally higher than its earlier forecast of $2.60-$2.65. The market was looking for revenues of $360.17 million with an EPS of $2.63 for the year.

Qualys managed to post better than expected results for the quarter. Revenues, margins, and the outlook was better than the market’s estimates. The current pandemic has resulted in slower hiring this year, and management expects FY21 to be an investment year as it increases its sales capacity to build a pipeline for newer solutions. Coupled with newer products, and a bigger sales team, Qualys should see a stronger performance in the coming quarters.

Qualys’s Product Expansion

During the quarter, Qualys expanded the integration of its Vulnerability Management with Microsoft Azure Arc. The integration will allow customers to perform vulnerability scanning on servers that are outside of the Azure platform including both on-premise and multi-cloud servers. The capability will be available for all customers of Azure Defender at no extra cost.

It also expanded its partnership with Infosys to integrate both VMDR and Multi-Vector EDR with Cyber Next Platform, its Managed Security Service Provider (MSSP) offering. As part of the initiative, Qualys VMDR and Multi-Vector EDR will collect large amounts of telemetry from its cloud agent and several sensors and integrate it with network information. This will help Infosys’ customers reduce lateral movement of security breaches and extend the use of functionalities like Cloud Agent to Patch Management and File Integrity Monitoring.

Other product enhancements during the quarter include the release of its Multi-Vector EDR for Linux environments. It also released a major update to its passive scanning capabilities that will significantly expand its coverage of Industrial Control Systems (ICS), Operational Technology (OT), and IoT devices. Qualys is now working on releasing its Endpoint Protection Platform (EPP) extension to its Multi-Vector EDR solution. The solution is expected to be available by the end of the first quarter of the coming year.

Qualys Needs a PaaS Strategy

Qualys currently allows its technology partners access to open XML APIs that allow them to produce integrators that can seamlessly integrate Qualys’s security and compliance suite into their own applications. Qualys does not have an ISV ecosystem or a PaaS strategy yet. But it does have the architecture needed to build this offering. I think it needs to be ready to take the next step of building a PaaS strategy as I expect the PaaS trend to accelerate in 2021.

Qualys is known for its acqui-hire strategy where it acquires smaller, capital-efficient startups to drive market and technological expansion. The acquisition of Indian 1Mby1M player Adya is a case in point. By building an ISV ecosystem, Qualys will have access to more such players, thus expanding its technological prowess significantly. The ISV ecosystem will help developers build functionalities to add to Qualys’s product offerings, and in return give Qualys access to a steady pool of developers it can acquire.

Its stock is currently trading at $94.25 with a market capitalization of $3.68 billion. It touched a 52-week high of $125.22 in late July. The stock has recovered from the 52-week low of $63.37 it had fallen to in March this year.