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On Wednesday, Morgan Stanley (NYSE:MS) adjusted its outlook on Varonis Systems (NASDAQ:VRNS), reducing the price target to $54 from the previous $60. Despite this change, the firm maintained its Overweight rating on the stock. According to InvestingPro data, analyst targets for Varonis range from $37 to $70, with the stock currently trading at $46.84. While the company isn’t profitable over the last twelve months, analysts predict profitability this year. The adjustment followed Varonis Systems’ announcement of its fourth-quarter results, which showed an 18% year-over-year increase in Annual Recurring Revenue (ARR), surpassing consensus estimates by 1%.
The growth in ARR was attributed mainly to a higher-than-anticipated mix of Software (ETR:SOWGn) as a Service (SaaS) sales, now representing over 50% of the company’s ARR. Varonis also reported a robust Free Cash Flow (FCF) of $109 million for the full year, a figure that has doubled compared to the previous year and represents approximately a 20% margin. InvestingPro analysis reveals impressive gross profit margins of 84.06% and shows the company operates with a moderate level of debt. For detailed insights into Varonis’s financial health and additional ProTips, subscribers can access the comprehensive Pro Research Report.
Looking forward, Varonis has provided an ARR outlook for fiscal year 2025, projecting a growth of 15-16% year-over-year. This forecast aligns with consensus expectations and anticipates that 78% of ARR will come from SaaS by the end of the year, which is a full year ahead of previous estimates. The swift transition to SaaS has raised some concerns about a potential ’air pocket’ in the next year, as the majority of the customer base completes the migration.
Morgan Stanley noted that while the ARR excluding conversions might seem underwhelming, this is primarily because the Varonis sales organization has been concentrating on transitioning customers to SaaS, which has a 25% higher Average Selling Price (ASP) in a tighter budget environment. With a market capitalization of $5.27 billion and revenue growth of 12.07% in the last twelve months, Varonis maintains strong liquidity with a current ratio of 1.81, according to InvestingPro data. This focus has temporarily affected the company’s broader upsell motion.
Despite these challenges, the Q4 Net New ARR increased by 25% year-over-year, with the full year up by 27%, even against a tougher comparison from the previous year. Morgan Stanley anticipates that as more customers switch to SaaS, product upsell will become a more significant contributor to growth when these customers renew in the upcoming years. Additionally, the pipeline for new products and use cases, such as Managed Detection and Response (MDDR) and AI Security, continues to grow.
In other recent news, Cantor Fitzgerald initiated coverage on Varonis Systems with an Overweight rating and a price target of $60.00. The firm cited the rising significance of data security investments, adoption of AI, and growth in data volumes as key trends expected to contribute to Varonis’s performance. Feedback on Varonis’s GenAI technology was noted as a significant factor anticipated to impact the company’s Annual Recurring Revenue (ARR) in fiscal year 2025.
On a different note, Piper Sandler adjusted its outlook on Varonis Systems, reducing the price target from $55.00 to $50.00 while maintaining a Neutral rating. The adjustment aims to better align with the terminal multiple expectations of industry peers. The firm’s base case discounted cash flow (DCF) analysis for Varonis Systems projects a five-year revenue compound annual growth rate (CAGR) of 20.2% through the calendar year 2029.
These are recent developments that reflect the changing perspectives of different analyst firms on the company’s potential growth and market positioning.
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