Management Changes, Weakening Demand Put Imperva In Peril

Citing its reseller checks and management transition, Piper Jaffray downgraded shares of Imperva Inc IMPV. The downgrade was blamed on four tenets:

1. A deterioration in demand trends.
2. The resignation of the CEO and chief financial officer in the third quarter.
3. Potential for downside to fiscal year 2018 revenue estimate.
4. The valuation.

As such, the firm downgraded shares of Imperva from Overweight to Neutral and reduced its price target from $58 to $42.

At time of writing, shares of Imperva were slumping 5.16 percent to $41.35.

3Q Could Be, At Best, An In-Line Quarter

Analyst Andrew Nowinski noted that Imperva's results in its third-quarter reseller survey fell for the second straight quarter, with no reseller reporting Above Plan results. The analyst said the resignation of the CEO and CFO may have caused some disruption in the demand trends this quarter.

Going by the weak demand trends, the analyst said it is expecting, at best, an in-line quarter.

Firewalls Don't Protect

Piper Jaffray pointed to the reseller survey results, which showed weak demand for database firewalls. The firm said it doesn't view the results as surprising, given that database firewalls have the longest sales cycles and are typically sold by the direct salesforce rather than the channel.

Meanwhile, the firm said the WAF and Incapsula products had the strongest demand.

New Management Could Be Long-Term Positive

The firm said it believes the new management changes will be a positive in the long term, given the execution issues the company has sustained over the last two years. However, the firm also said these changes could also create disruption near term.

Revenue Estimate At Risk

The firm said the consensus revenue estimate of $379.8 million, representing 18 percent year-over-year growth, will be at risk if the demand trends continue to decline in the third quarter.

"While the company has easy comparisons in 3Q17 and 4Q17, we note that the comparisons get much more difficult in FY18," the firm said.

"As such, we would expect a fairly significant deceleration in revenue growth in FY18."