- £300 million wiped off market value as stock crashes below IPO price
- Software trials not converting to new business at same pace
- Analyst calls stock ‘key multi-year pick’ despite slowdown
Cyber security firm Darktrace (DARK) saw nearly £300 million swiped off its market valuation after warning of slowing growth.
The Cambridge-based digital defender cut its growth forecasts for the year as new customers pulled the plug on technology spending as the global economy weakens. Darktrace now expects annualised recurring revenue, adjusted for foreign exchange swings, to rise by between 29% and 31.5%, down from a range of 31% to 34% previously.
‘Clearly...the current macro-economic environment is creating challenges to winning new customers, with prospects more reluctant to run product trials,’ said chief financial officer Cathy Graham. ‘Conversion rates have also started to decline in some regions where customers have in the past been more likely to commit to contracts after their initial trials.’
STOCK FALLS BELOW IPO PRICE
The market’s reaction was sharp and severe, with Darktrace shares plunging below their 250p April 2021 IPO price for the first time. The decline eased slightly at 11am, with the share price trading around 14% down at 252p.
Darktrace lost around 38% during 2022 despite issuing a series of upbeat updates throughout the year that led analysts to raise forecasts several times.
While the company may be doing less business than expected, the dollar’s recent fall is at least allowing it to make slightly more profit on sales. The company raised its underlying operating margin forecasts to a range of 16% to 18.5%, from 15% to 18% previously.
‘KEY MULTI-YEAR PICK’, SAYS ANALYST
Analysts at Berenberg still described the stock as a ‘key multi-year pick’ in a morning note to clients despite evidence of the slowdown. They noted that while the number of new deals signed by the company was down around 24% from a year earlier in the final quarter of 2022, the average deal size was much larger, suggesting it is gaining traction with bigger businesses.
Berenberg also said that Darktrace is well capitalised to take market share. ‘In 2022, cyber stocks declined by 45%, despite sales lifting by circa 7% (including Darktrace). This underperformance is therefore largely explained by valuation compression,’ said Berenberg.
The company also announced on Wednesday that it has hired Denise Walter as its new chief revenue officer. An industry veteran, Walter was most recently vice president for sales, enterprise and globals at VMware (VMW:NYSE).
She will be based in California and take ‘global responsibility for all aspects of revenue generation, including new business growth, particularly in the US,’ Darktrace said.
