Tenable Holdings

Tenable reported second-quarter results that included sales growing 9% to $269 million and adjusted operating margins expanding 600 basis points to 25%. Tenable One, the firm's multimodule exposure management platform, continues to be a key growth driver, contributing 50% of new business.

Why it matters: Cyber companies are seeing strong demand for their solutions as artificial intelligence models' cyber offense capabilities continue to grow, spurring demand for more defense. We believe this dynamic, and the rise in cyber budgets, will disproportionately benefit large platform cyber vendors. While we have been calling out vendor consolidation as a major secular trend in cyber for many years, we believe AI, and the increased risk of having disjointed point-solution cyber defense, will further encourage enterprises to consolidate cyber spending. As a small player in the broader cyber landscape, we believe Tenable lacks the breadth to capture these incremental AI-driven dollars. While its platform, Tenable One, continues to perform well, we foresee the firm's growth prospects to be affected by its legacy, point-solution business.

The bottom line: We maintain our $23 fair value estimate per share for no-moat Tenable. While shares are up 38% year to date, primarily as AI fears have driven stocks across our cyber coverage higher, we view them as overvalued. We believe for Tenable to justify its valuation, Tenable One needs to be developed further, enabling it to capture incremental vendor-consolidation dollars. Tenable One, especially the advanced tier, carrying a materially higher price point than standalone VM, can help drive the firm's margins higher and played a role in the firm's adjusted operating margin expansion this quarter.

Coming up: Management expects sales to grow around 8% next quarter, implying a sequential deceleration. We see this as further evidence that, despite the increased interest in cyber due to AI, Tenable is not a key beneficiary.

Our fair value estimate is $23 per share, implying a 2026 enterprise value/sales multiple of 2 times.

We forecast Tenable’s revenue growing at a 6% compound annual growth rate over the next five years. We expect the greatest growth driver to be an uptick in adoption of exposure management modules from both new and existing customers, where TenableOne solutions will increase as a proportion of total sales. As the economy recovers in the coming years, we expect several points of sales growth to stem from greenfield VM opportunities. While we expect VM to remain the lion’s share of revenue, we expect its proportion of sales to lessen over time with the firm’s diversified offerings. Looking to the mid- to long-term, we believe Tenable will continue to grow through upselling various modules to existing customers, executing its “land-and-expand” strategy.

GAAP gross margins have compressed over the last five years to around 78% in 2025, due to the increasing usage of cloud-based products and initial costs associated with the release of TenableOne. We don't expect any material gross margin improvements for the business as scaling efficiencies are offset by increased usage of AI in Tenable's security solutions, which would likely be margin-dilutive.

Tenable has invested heavily in research and sales in prior years in order to expand beyond its VM roots. Looking ahead, we expect these line items to decrease as a percentage of revenue as the company scales, thereby boosting the firm’s operating leverage. We model the firm achieving GAAP profitability by 2026 and improving to a low-double-digit operating margin by fiscal 2030. On a non-GAAP basis, we expect the firm will achieve operating margins of around 30% by 2030, up from 22% in 2025.

We don’t assign Tenable an economic moat as we think that the firm faces structural competitive pressures that are likely to erode its competitive positioning. As a result, we don’t have confidence in the firm’s ability to generate excess returns over invested capital over the next decade.

Looking to the broader cybersecurity market, we believe that the complexity and intensity of threats are ever-increasing. As enterprises undergo digital transformations and cloud migrations which expand their digital footprints, the number of attack vectors is rapidly increasing. In response to this escalating threat level, IT teams are adopting more cybersecurity tools for the expanding attack surfaces. However, in many instances, the adoption of more tools creates data silos in which disparate solutions are not interoperable. In fact, based on various reports, we estimate enterprises currently use 60-80 different security solutions from different vendors, but wish to narrow that number down to 15-20 key applications. This presents the opportunity for cybersecurity vendors to provide multiple solutions within one platform, displacing vendors providing only point solutions. This consolidation trend, while presenting an opportunity for multisolution vendors, disproportionately favors large, well-resourced platform players, and we believe Tenable lacks the scale and breadth to be a primary beneficiary.

Tenable offers an array of cybersecurity solutions, which are built around its expertise in vulnerability management, or VM. Put simply, VM involves regularly scanning internal IT systems and applications for vulnerabilities, assessing the severity of those vulnerabilities, and developing and implementing strategies to mitigate them. We have seen larger vendors, including Palo Alto and CrowdStrike, enter into the VM space, creating a tough competitive environment for vendors such as Tenable, Qualys, and Rapid7.

Tenable’s software is considered best-of-breed for vulnerability management, and therefore well trusted amongst enterprise and government customers.

Tenable’s portfolio expansion toward an exposure management platform enables greater upselling opportunity, thereby increasing its stickiness overtime.

Organizations across geographies and industries are prioritizing cybersecurity spending, providing vendors like Tenable a robust demand landscape.

Tenable’s operating leverage and cash flow may be further depressed if the firm is required to continue investing heavily in its platform.

Tenable faces stiff competition from vendors like CrowdStrike and Palo Alto Networks, which are much larger and better capitalized than Tenable.

There always remains a risk that Tenable’s solutions can be rendered obsolete in an industry that evolves at such a rapid pace.