Rubrik IPO shows security back at the top of the agenda

As well as bucking at least two market trends, a new cybersecurity floatation is welcome news for those who think the area needs to be taken seriously, says Jason Walsh

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Cyber security company Rubrik went public last month, giving investors hope of a rebound in technology firms making themselves open to common stock investors.

Notably, Rubrik’s initial public offering (IPO) was oversubscribed, such was the level of demand from investors. Trade has remained brisk: the Microsoft-backed company set its initial public offering price at $32 per share, just above its predicted range of $21 to $31, and quickly climbed by 20% to $38.60, and, at the time of writing, now sits at $33.60 per share. 

The zero-trust security provider’s IPO is good news for a number of reasons. The first of which is that it may indicate the beginning of a return to public markets. 

One rarely-discussed phenomenon is that the number of companies whose shares are traded on public bourses has been shrinking for years. In the US, for example, the total number of companies issuing common stock on the markets has shrunk dramatically, with CNN reporting a fall from a high of 7,300 in 1996.

Noting this last year, JP Morgan boss Jamie Dimon said that this made it harder to get a clear picture of the state of the US economy.

“There is something very positive about detailed and disciplined quarterly financial and operating reporting,” he wrote in a note to investors. 

So where have all of these companies gone? Mostly to the opaque world of private equity. According to JP Morgan data, the number of companies in the US owned by private equity firms has grown from 1,900 to 11,200 over the last two decades.

This matters because private equity ownership often leads to asset-stripping as the very common ‘two and twenty’ business model, so named for the fee structure of 2% plus bonus fee of 20% of profits made above a certain predefined level, does not incentivise a long-term view. Indeed, ‘profits’ can be squeezed out of companies by tricks such as selling real estate and leasing it back, ultimately leading to worse financial performance in the long term.

In addition, despite the soaring stock prices of Nvidia and Microsoft and continued good performance by Apple and Google, the tech sector as a whole, indeed the market as a whole, has not been performing particularly well for the last two years. Rising inflation and the policy of interest rate hikes intended to curb it have both hurt share prices, with investors lured away to less risky government bondsthat offer high yields after years of being effectively at zero.

More broadly, however, Rubrik’s IPO, and its over-subscription, indicate that they cyber security sector is in rude health. 

Indeed, after a very quiet few years, a number of other cybersecurity companies are now preparing to float on the stock market, including Snyk, Armis and Netskope. Whatever this tells us about the health of markets, it at least tells us that cyber security is seen as a valuable business. This, in turn, means that people are taking it seriously, and that can only be a good thing.

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