Netskope follows Rubrik as a rare cybersecurity IPO, both backed Lightspeed

Cloud cybersecurity platform Netskope is set to go public next week, targeting a valuation of up to $6.5 billion, a figure below its last private valuation of $7.5 billion from 2021. The 13-year-old SASE provider, which competes with Zscaler and Palo Alto Networks, reported H1 revenue of $328.5 million, up from $251.3 million year-over-year, with net losses narrowing to $169.5 million, though it remains unprofitable. Major investor Lightspeed Venture Partners holds a 19.3% stake, potentially realizing a significant gain, as Netskope joins a trend of VC-backed firms debuting below their peak private valuations in a market where cybersecurity IPOs have been scarce.

Analysis

Netskope's upcoming initial public offering marks a rare event in the cybersecurity sector, where acquisitions are more common than public listings. The cloud security firm is targeting a valuation of up to $6.5 billion, a notable discount from its $7.5 billion private valuation achieved during the 2021 ZIRP era, placing it among a recent trend of VC-backed companies debuting at lower valuations. Financially, Netskope demonstrates strong top-line momentum, with first-half revenue growing approximately 30.7% year-over-year to $328.5 million from $251.3 million. Concurrently, the company is showing progress on its path to profitability, as its net loss for the same period narrowed to $169.5 million from $206.7 million. Despite these improvements and substantial capital infusions, including a $401 million convertible note in 2023, profitability remains elusive. As a Secure Access Service Edge (SASE) provider, Netskope will be benchmarked directly against established public competitors like Zscaler and Palo Alto Networks. The IPO serves as a significant liquidity event for its major investors, including Lightspeed Venture Partners (19.3% stake) and ICONIQ Growth (19.2%), with Lightspeed's position potentially valued at over $1.1 billion.

Key Decisions for Investors

• Investors should evaluate Netskope's proposed $6.5 billion valuation against public competitors like Zscaler (ZS) and Palo Alto Networks (PANW) on a price-to-sales basis, factoring in its 30.7% revenue growth rate and continued unprofitability.
• Monitor the company's post-IPO quarterly reports for continued progress in narrowing net losses, as the ability to demonstrate a clear and sustainable path to profitability will be a critical performance driver.
• Consider the potential for significant selling pressure following the lock-up expiration, given the large concentrated stakes held by venture capital firms like Lightspeed and ICONIQ Growth.
• The stock's initial trading performance will serve as a key barometer for market appetite towards high-growth but unprofitable technology IPOs in the current macroeconomic environment.