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This is a recent comment by an American stockbroker about Crowdstrike:
"CrowdStrike Holdings, Inc. a provider of cyber security software solutions, delivered quarterly results that exceeded expectations, but provided guidance that disappointed, as the macro economy is causing longer sales cycles and some larger orders are being sold in smaller pieces. However, these deals are not being lost to competitors; they are just being delayed, and management expects enterprise security spending to remain relatively resilient in 2023.”
Part of the article says:
Analysts at Berenberg said they still believed “that the company is in a strong position both in the short and long term”.
In a research note, the bank added: “Darktrace remains a key multiyear pick and the company’s trading statement does not dissuade us of this.”
Berenberg pointed out that in 2022 cyber stocks declined by 45 per cent. It said: “With many large cyber companies (for example, Malwarebytes, Snyk and F5) cutting staff in an effort to preserve cash, some investors have incorrectly concluded that most cyber businesses are in the same state of flux and will have to opt for growth or profits/cash flow. Darktrace, however, is not in this position as profits and cash generation are only improving while the company still delivers solid growth.”
I'm bothered about this.
Zscaler is a competitor for Darktrace. Zscaler's sales are rocketing, but even so it makes big losses, because of stock-based compensation to its employees and directors. Darktrace results are due out soon, and no doubt they will also show a big increase in sales, but the share price won't go up if stock based compensation eliminates all the profits.
https://www.fool.com/investing/2023/01/03/zscaler-stock-keeps-getting-punished-is-it-a-buy-n/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
Apologies if you have already seen this. It was released on Tuesday this week, so I doubt has anything to do with today's rise. (I've been trying to find out why the share price has gone up today.)
https://www.intelligentcio.com/north-america/2023/01/03/darktrace-announces-new-customers-in-the-us-transport-and-logistics-sector/
CrowdStrike updated its FY 2023 earnings guidance on Thursday. The company provided earnings per share guidance of $1.49-$1.52 for the period, compared to the consensus estimate of $1.32.
What a nightmare this all is. Like everybody else on this board, I am well underwater.
I read the Investors Chronicle every week, regularly watch CNBC business news on the TV, but never have I picked up anywhere that there would be such a massive crash in all the tech shares. You might say I should have known - tech shares soared after some years of very low interest rates, and have correspondingly dropped as interest rates have recently gone up. Today's fall is linked to fears that American interest rates will go up even more in 2023.
But I'm still really depressed
The fall in the share price has nothing to do with Darktrace. Almost all technology companies, especially in America, continue to tumble because of worries of a recession next year, and Darktrace is simply caught in the rout.
Crowdstrike is down 9.5% in the last 5 days.
Sentinelone down 7.3%
Darktrace down 4%
The second half of FY 2023 is January to June 2023.
So the positive contribution to sales will not be reflected in the next trading update in February, or the half year results to 31 December 2022 due in early March
Perhaps, shorters, simply buying back their shares.
Also 16 million shares bought would be reflected by a big increase in the share price. Instead, it went down by 4p.
Anyone hoping to take over Darktrace would wait until the bear market had ended, not now when it may have a bit further to fall.
Poppy won't be worried about her recent purchase falling by £100,000. She is a long term holder, at least five years, like me, so will simply see out the recent falls.
We are in a bear market. Almost all shares are crashing, of good companies and bad. There's nothing wrong with Darktrace to support such a fall. It's just caught in the urge to sell, caused by fears of a recession, interest rate rises, and high inflation largely due to Putin's vanity war.
Also the American cybersecurity companies like Crowdstrike and SentinelOne have been very much overvalued in a bubble. The bubble has burst after Crowdstrike's results two weeks or so ago. The company's sales were shooting up, but the outlook was not so rosy, and this led to a big think about these companies, valued at three times more than Darktrace. Both companies have never ever made a profit. And in the end, share prices depend only on profits. The big drop in their share prices has also dragged Darktrace down with them.
Also this doesn't help the Darktrace share price. An article by Yahoo about Crowdstrike said:
"The company projected sales of as much as $628.2 million in the fourth quarter, compared with analysts’ average estimate of $634.8 million in a statement on Tuesday. Chief Executive Officer George Kurtz also said total net new annual recurring revenue was below the company’s expectations amid increased economic headwinds that caused some customers to delay purchases. The slowdown in annual recurring revenue is a sign that companies, especially small and mid-sized businesses, may be pulling back on information technology security spending amid uncertainty about the economy, said analysts at Bloomberg Intelligence."
This also makes matters worse - stock-based compensation.
https://www.fool.com/investing/2022/11/30/the-big-problem-with-crowdstrike-stock/
Crowdstrike directors will be taking a lot of money out of the company by this means.
I don't know if Darktrace are doing the same thing, to our detriment. I tried to find out why Mike Lynch and his wife voted against the directors' remuneration at the recent AGM, but had no success. Mike Lynch must have had a good reason for doing so.
I'm afraid I'm rather cynical of cyber awards. They are 10 a penny.
https://www.google.com/search?sxsrf=ALiCzsYRhQiLiJ_7F6JPVk3_8kIfy7KDXQ:1670437039665&q=security+awards+2022&tbm=isch&chips=q:security+awards+2022,online_chips:cyber+security:iSPauARdBQo%3D&usg=AI4_-kTIdmt2-0J8-f33S1fXryCYVx-qCw&sa=X&ved=2ahUKEwi5svnyjuj7AhUDSMAKHarlC-MQgIoDKAB6BAgXEBE&biw=1600&bih=757&dpr=1
"Darktrace soared by 4.3%, or 14.8p, to £3.55 after Redburn initiated its coverage with a 'buy' rating and target price of £5.50."
It lasted all of 17 minutes. There were about 25 people there, all Darktrace staff and directors, I think, apart from me.
I asked two questions. Prevent is now being sold, and the last one of DT's four products, Heal, will be on sale in 2023. I asked what new products will DT sell after that? I was told that they have 125 staff engaged in R&D, in Cambridge and Holland, working on a number of projects. The overall answer was that DT is and will be an AI company.
I asked about DT's competitors. The company thinks that when Heal is on sale, to complete the product range, they won't need to be concerned about competition because their product is unique and better than that offered by the competition.
Poppy also said that she is often asked about competition from Microsoft. She said that Microsoft are not in competition at all with Darktrace. Microsoft are primarily concerned with processing huge quantities of data - they are not also in the business of selling cyber-security products.
If any other company does want to take over Darktrace, the talks will be very hush hush and we won't get to hear of them until they are resolved. The Thomo Brava talks were leaked, which meant a big jump in the share price, no doubt to the fury of TB.
So if a company should decide to take over Darktrace and it is all agreed, we will be the last to know. Only the small number of shareholders who control the company will decide everything
Darktrace (DARK) published a solid set of annual results. However, this will be overshadowed by the fact that US private equity group Thoma Bravo has pulled out of a potential deal for the cyber security company. The market will be waiting for more details about the reasons for the abandoned deal before the share price shows signs of recovery.
Ignoring the speculation around the deal, the results were promising. Constant currency annual recurring revenue (ARR) increased 42.6 per cent to $514mn (£448mn). There were more customers, and they were willing to pay more, with the number growing by 32.1 per cent to 7,437, while average contract ARR was up 7.9 per cent.
The one-year gross churn rate dropped one percentage point to 6.5 per cent. This shows the stickiness of the software is improving. Between 5 and 7 per cent is about average for software churn rates.
Lower costs because of travel restrictions during the pandemic and timely payments from customers helped boost free cash flow by 290 per cent to $99.5mn. The company admits that free cash flow as a percentage of adjusted Ebitda - currently 108.9 per cent - can swing by as much as 15 percentage points, depending on the timing of collections from customers.
Next year, due to the return of travel and cash payments for employer taxes related to vesting grants made at the IPO, management expects cash conversion to fall to around 65 per cent. The typical range should be between 75 per cent and 105 per cent.
Broker Peel Hunt expects cash profit (Ebitda) of $87.1mn in 2024, up 75 per cent from the $49.5mn in 2022. But the broker considers the cancelled Thoma Bravo offer as an important factor in its valuation of Darktrace, saying “we await further clarification on what led to the deal not materialising”.
From the outside at least, Darktrace has undoubtedly become a lot better value this year. It is now trading on a price to ARR of around 5.7 times, which isn’t absurd for a recurring revenue software business. We remain wary given the potential news to come, but the company is creeping towards a reasonable-looking entry point. Hold.
Crowdstrike down 5.7%
Sentinel down 6.1%
So Darktrace 3.7%. Nothing wrong with our company. We're just caught in the flow.
Darktrace only floated on the London Stock Exchange last year but already it has become a takeover target.
Neil Wilson, an analyst at Markets.com said: "This is not a company that requires a private equity reboot. It has only been listed a year and is still growing at a lick. Ordinary investors should be given a chance to hold its shares."
The latest flurry of takeovers will eat into the FTSE All-Share index’s already meagre 1.5% exposure to tech, as all the suitors are based outside of the UK. Analysts also see Kape Technologies Plc, Redcentric Plc, The Sage Group Plc, and Keywords Studios Plc among the most likely takeover candidates in the space.
“The relative cheap valuations of many UK tech companies compared to their US peers, combined with the weakness of sterling are likely to continue to attract suitors,” said Neil Campling, head of TMT research at Mirabaud Securities. Buyout groups are sitting on tremendous piles of dry powder and firms may conclude that buying is quicker than building, he said.
7am