Cato Networks is considering an IPO after surpassing $200 million in annual recurring revenue in Q2 2024
Next year could be a favorable time for an IPO as capital markets are expected to improve
Other startups in the sector could follow suit
It's aliiiive! The IPO market, that is. After a dramatic fall in the number of IPOs over the last two years, Cato Networks is eyeing a jump into the public market, a move which could signal to other small networking and security firms that the time to go public is ripe.
Cato surpassed $200 million in annual recurring revenue (ARR) in the second quarter of 2024—doubling its total ARR in under two years and underscoring rumors from earlier this year that the company is aiming to go public by 2025.
CEO Shlomo Kramer couldn’t speak to a timeline, but told Fierce Network this week that “becoming a public company is definitely a possibility.”
“In order to be a public company, there’s lots of stuff that we're doing internally to mature the company. There are also lots of elements that have nothing to do with us, like the markets and many other events,” Kramer said.
In March, Reuters reported that Cato Networks had hired underwriters for an initial public offering, working with Goldman Sachs, JPMorgan Chase and Barclays to lead preparations. A source told the outlet that the company is looking to raise more than $500 million for a stock market flotation.
All go for IPOs
There is a sweet spot for startups to tap into equity markets while they're rapidly growing, Dell’Oro Group Senior Research Director Mauricio Sanchez told Fierce. He added, “And I think Cato is in that phase right now.”
The year 2025 could be a good window of opportunity, as capital markets are expected to improve.
“The pendulum seems to be starting to swing, or at least moving in the right direction of facilitating liquidity in the capital markets for startups,” Sanchez said.
Versa Networks, a Cato competitor, has also hinted at an IPO in the past, Sanchez noted. “The startups that I’ve talked to, they just seem to be exploring. And Cato is in the same boat, playing out their options.”
According to data from Statista, the number of IPOs continued to fall in 2023, dipping to just 154 from 480 in 2020 and a high of over 1,000 in 2021. Even before the Covid-era boom, IPOs in 2017-2019 numbered well over 200 each year.
That could be changing directions. AvidThink Founder and Principal Analyst Roy Chua recently told Fierce that “the overall sentiment is that the IPO market is open again.”
Sustaining growth
As Cato considers going public and aims to maintain strong growth, a crucial question will be how to penetrate the larger enterprise market.
The fact that Cato’s SASE is unified has allowed them to stand apart from the competition, Sanchez said — even the bigger players, like Palo Alto Networks and Zscaler. For “a certain slice of the market,” mostly mid-market enterprises, a unified platform is appealing because it provides greater simplicity than having to manage multiple products or vendors.
But for large enterprises, operations are still often siloed, and they tend to select different vendors for networking and security solutions.
“I think that today's still a question mark,” Sanchez said. “How can you drive a single vendor platform into that type of environment?”
Kramer told Fierce that Cato has already been making some progress on that front. “We are seeing that the SASE concept and the need for platform is becoming widely accepted not only in mid-enterprise, that was the sweet spot of SASE historically, but going up market to larger and larger organizations,” he said. “We are seeing Fortune 500 customers for Cato now.”
The continued growth of the company might extend beyond SASE’s essentials, which by Gartner’s definition include SD-WAN, secure web gateway (SWG), cloud access security broker (CASB), zero trust network access (ZTNA) and firewall as a service (FWaaS). Cato has already started dabbling with other product sets, like extended detection and response (XDR), and it won’t stop there.
“We're going to expand beyond that to other edges of the network that we serve today,” Kramer said.