UK cybersecurity firm Darktrace (DARK) hailed a ‘strong’ performance in the first half of this year and hiked guidance for the full year, which runs until 30 June 2022.
Darktrace proved a big hit with investors through 2021. Listing on the stock market at 250p in April, the shares surged 43% on their market debut and ultimately peaked at 945.5p in October, before things turned sour. By the end of 2021 the stock had more than halved as investors became cautious on hyper growth stocks.
But the company was back in the good books on Tuesday after telling the market that customer numbers grew 39.6% during the six months to 31 December 22021, adding 6,531 customers. Annual recurring revenues, or ARR, also rallied strongly, up 45% to help overall revenues to jump 50%.
Darktrace said it expects to report half year ARR of at least $426 million with net revenue seen to be at least $190 million.
CATCHING THE MARKET OFF GUARD
The stock rallied nearly 12% to 441.8p as the digital security firm also sharply raised full year guidance for both revenues and earnings margins.
Darktrace now expects a year-over-year increase in its constant currency ARR of between 37% and 38.5%, the company said in a statement, up from the previous growth steer of between 34% and 36%. Adjusted earnings before interest, tax, depreciation and amortisation margins are now pitched in the 3% to 6% range, up from 2% to 5% before.
‘Shares in Darktrace enjoyed a double whammy of raised earnings guidance and a small recovery in the broader technology sector following a big sell-off in recent days,’ says Russ Mould, investment director at AJ Bell.
‘It has been focused on cross-selling services to existing clients, thus making them more reliant on Darktrace’s ecosystem which in turn could be a key reason why churn rates are easing. It has also been successful at signing up lots of new customers,’ Mould said.
ANALYST INCREASINGLY OPTIMISTIC
‘In the past six months we have become increasingly bullish on Darktrace as it not only continues to deliver strong customer growth (something the firm has done for many years) but also an increasing ARR per customer, driven by pricing uplifts and greater upsell,’ wrote analysts at investment bank Berenberg in a note to clients.
A survey of Darktrace customers organised by Berenberg recently found that prices are rising too, supporting a ‘credible scenario of Darktrace achieving an ARR of $0.85 billion to $1 billion, and today's results only support this thesis.’
That would imply a 30% to 50% increase on Berenberg’s base case forecasts for the year to June 2024.
‘If we arithmetically take the mid-points of raised guidance ranges, the new targets imply a 5% upgrade to management guidance on revenues and a 36% upgrade to management guidance on EBITDA from $13 million to $18 million,’ calculate analysts at Jefferies.
Peel Hunt took a more cautious tone, pointing out that churn of 6.9% may not stay that low. ‘We note that churn rates will appear lower during periods of higher growth due to customer contract lock-in dynamics, typically on three-year contracts.’
Disclaimer: Writer Steven Frazer and James Crux, who edited this article, both own shares in AJ Bell which owns Shares
