Darktrace shares slump below IPO price after new customers slow

More than a tenth was wiped off the value of Darktrace after the Cambridge-based cyber security specialist said more challenging macroeconomic conditions were making it harder to sign up new customers.

Darktrace cut its full-year revenue forecast, warning that the impact on new customer growth had been larger than expected in the first half of its financial year, which ended in December.

As a result of these preliminary results and an expectation that trends would continue through the second half, the company cut its 2023 guidance for revenue and annual recurring revenue, a financial measure for software subscription businesses.

Its share price was 14 per cent lower in trading on Wednesday morning, leaving the company valued at £1.8bn. A sharper initial fall after markets opened led to Darktrace falling below its IPO price of 250p for the first time since it listed in April 2021.

The company said it expected its constant currency annual recurring revenue to increase by between 29 per cent and 31.5 per cent in the year to the end of June, from a previous forecast of 31 per cent to 34 per cent.

However, Darktrace added that it expected to be able to continue to operate efficiently and invest to support future growth, leading to an increase in its forecast for adjusted earnings margins.

Cathy Graham, chief financial officer, said: “Clearly, the current macroeconomic environment is creating challenges to winning new customers, with prospects more reluctant to run product trials and, in regions with historically higher conversion rates, those rates starting to decline.”

While Graham said the company was confident in new product developments this year, the expectation of slower growth meant it was “prudent” to cut guidance.

Having reached a high point of 945p in October 2021, Darktrace’s share price was trading on Wednesday morning at 252p. Shares fell by about a quarter in December alone as a result of poor results from other cyber security companies.

Darktrace, which was founded in 2013 and initially backed by Autonomy founder Mike Lynch’s Invoke Capital, uses artificial intelligence to help to detect security flaws and prevent cyber attacks.

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.”