- Private equity firm decides against making a firm offer
- Darktrace posts strong growth and first full year profit
- Dollar and margins likely put some pressure on fiscal 2023
Cybersecurity company Darktrace (DARK) saw recent share price gains wiped out as the stock plunged after private equity investor Thoma Bravo said it was walking away from a possible deal.
Investor buying had sent the stock surging from 377p to 540p when talks investigating a deal to take the firm private where revealed last month. Yet those gains were washed away after today’s bombshell news.
Darktrace shares fell 32% to 350p.
MARKET REMAINS BLIND TO LONG-TERM
Many investors had seemingly concluded that going into private ownership was the best way to extract near-term value from a share price that has seen wild swings since being listed about 18-months ago at 250p. In October 2021, the stock hit a record 945p, before falling sharply, hitting a 292.6p low in July this year.
Yet investors willing to play a long-term hand might have been left wondering once more at the short-sightedness of UK equity markets just when Darktrace is showing signs of maturing into a fast growing, profitable business.
Today’s takeover news came alongside full year to 30 June 2022 figures that saw the company chalk-up its first ever annual net profit of $1.46 million, versus the previous year’s $146 million loss. This was a strong performance for growth driven by new customer wins that says a lot about demand for Darktrace’s artificial intelligence cybersecurity tools.
MORE CLIENTS BUYING MORE
The company added more than 500 clients in the fourth quarter bringing its full-year total to over 7,400, up 32%. It is also improving its ARR (annual recurring revenue) retention rate, from 103.1% to 105.5%. Growth came from all angles, with its biggest US market up 34% to $143 million, albeit with a $3.8 million revenue recognition adjustment.
‘We have a proven business model, which is generating cash,’ said Darktrace CEO Poppy Gustafsson. ‘Today’s results are yet another example of our strong performance. Being listed on the London Stock Exchange is exactly where we want to be right now.’
Given the rally in the dollar as the world’s financial markets stare recession in the face, Darktrace did offer caution that year-on-year growth comparisons are expected to dampened for the first six-to-nine months of fiscal 2023 by the impact of significant movements in exchange rates.
It is also balancing expectations on strong sales momentum exiting fiscal 2022 against uncertainties in the global economic environment.
It is also worth noting likely pressure on profit margins this year as tailwinds from Covid conditions ease, according to Peel Hunt analysts. ‘Darktrace anticipates full year 2023 adjusted EBITDA margins (earnings before interest, tax, depreciation and amortisation) of 15% to 18%, in line with July’s trading update, which is lower than the 22% in full year 2022 as pandemic savings unwind.’
