Dell SecureWorks Falls Short On IPO Expectations

SecureWorks officially launched into the public market Friday, but the security services company's first day on the stock exchange wasn't quite as lucrative as it expected.

The Atlanta-based company, a subsidiary of Dell and parent company Denali Holding, started the day trading at $13.69, below its expected initial public offering of $15.50 to $17.50 per share. SecureWorks sold 8 million shares, 1 million shares less than expected, to raise a total of $112 million.

SecureWorks had expected to raise $134.3 million from the IPO, money it said in its S-1 filing last week would be put toward "working capital and other general corporate purposes." That could include growth initiatives, new solutions and other investments, the company said. SecureWorks said it doesn't plan to transfer proceeds to Dell, which is looking to finance a proposed $67 billion blockbuster deal to purchase EMC.

[Related: Unisys CEO: Security Sales Set To Soar As Cybersecurity Software Is Taken Global]

The less-than-stellar performance didn't seem to dampen the spirits of CEO Michael Cote, who said in an interview on CNBC on Friday that the company had been working toward an IPO, invested in the business and was "ready to take the company public at this time."

"We're ecstatic about the day we've had at NASDAQ. It's been spectacular," Cote said.

Some Wall Street analysts attributed the slow start to the company's lack of profitability. Revenue for SecureWorks -- which offers managed security, threat intelligence, security and risk consulting, and incident response services to enterprises -- was $205.8 million in 2014, $262.1 million in 2015 and $339.5 million in 2016, according to the S-1 filing last week. However, as revenue grew, so did the company's losses, with a $44.5 million loss in 2014, a $38.5 million loss in 2015 and a $72.4 million loss in 2016. SecureWorks blamed mounting operating expenses for the growing losses.

Cote said on CNBC that the company's investments in sales and global infrastructure were "not anything unusual," but instead were in response to security opportunities in the market. He said the company will have some initial added general and administrative expenses because of the IPO.

Jane Wright, principal analyst at Technology Business Research, said in a research note that she believes the influx of cash from the IPO will go a long way toward providing the "funding and momentum" for SecureWorks to invest in growing its managed security services offerings, something she noted is particularly cost-intensive. Competitors, such as Optiv and Trustwave, have taken other steps to "rally their resources" in this shift, she said, citing the merger of Accuvant and FishNet Security into Optiv as an example.

That aside, Wright said, she thinks SecureWorks has made some key investments in advisory services, such as its Red Cloak service, that will put it on the right trajectory for growth in the long term. Those investments, combined with five security operations centers around the world and an extensive tech ecosystem, will help position it to take competitors Optiv and Trustwave head on. Wright said TBR predicts SecureWorks will see revenues of around $475 million in 2017, with margin improvements coming as soon as 2018.

"[The] SecureWorks’ IPO will provide the funding and momentum for SecureWorks to make more decisive moves to take segment share, accelerate its revenue growth and improve its margins," Wright said in her research note.