On Tuesday, RBC Capital Markets adjusted its outlook on Varonis Systems Inc. (NASDAQ: NASDAQ:VRNS) stock, a leader in data security and analytics. The firm raised its price target on the stock to $65 from the previous $58, while maintaining an Outperform rating.
The revision followed Varonis Systems' announcement of accelerated annual recurring revenue (ARR) growth, which reached 18%, prompting an upward revision of the company's full-year 2024 guidance.
Varonis has seen a significant shift toward SaaS, with these offerings now comprising 36% of the company's ARR. The forecast for SaaS contribution has been increased to 48% for the full year 2024, up from an earlier estimate of 46%.
The positive momentum is expected to continue post fourth quarter of 2024, with projections indicating that ARR growth could surpass 20% in the short term. RBC Capital Markets also noted potential additional gains from Varonis' traction in Managed Detection and Response (MDDR) and the adoption of its next-generation analytics platform, GenAI.
The firm reiterated its Outperform rating, underscoring its view of Varonis Systems as a top small to mid-cap (SMID-cap) investment idea. The optimistic outlook is based on the strong performance and promising growth trajectory of the company's SaaS offerings.
In other recent news, Varonis Systems has reported strong second-quarter results, with a notable 18% increase in Annual Recurring Revenue (ARR) to $584.2 million. The robust performance was largely driven by the company's Software-as-a-Service (SaaS) platform and its Managed Detection and Response (MDDR) solution. In light of these results, Varonis has revised its full-year guidance upwards.
Investment firms TD Cowen and JPMorgan have responded positively to these developments. TD Cowen adjusted its price target for Varonis to $65, up from $54, maintaining a Buy rating on the stock. Similarly, JPMorgan increased its price target to $59 from $54, while also maintaining an Overweight rating.
The company's transition to a SaaS business model has been successful, with SaaS contributing to 36% of the total ARR by the end of the quarter. Varonis aims for SaaS to comprise 48% of total ARR by the end of 2024. The introduction of the MDDR solution has also been instrumental in securing new business, strengthening Varonis' position in the cybersecurity market.
Finally, despite revenue headwinds due to the transition from on-prem subscriptions to SaaS, Varonis remains confident in the long-term opportunity and trajectory of its business. The company's solutions are experiencing high demand due to the adoption of generative AI and increasing data-centric compliance regulations.
InvestingPro Insights
Following RBC Capital Markets' positive outlook on Varonis Systems Inc. (NASDAQ: VRNS), InvestingPro data and tips provide further context for investors considering this data security leader. With a market capitalization of $5.41 billion and a notable gross profit margin of 85.08% for the last twelve months as of Q1 2024, Varonis demonstrates significant financial health and efficiency in its operations.
Despite not being profitable over the last twelve months, with an operating income margin of -24.07%, analysts are predicting profitability for the company this year. This aligns with RBC's optimistic view and may signal a turning point for potential investors. The strong return of 72.99% over the last year further highlights the company's impressive performance in the market.
For investors seeking additional insights, InvestingPro offers more tips, including the fact that Varonis holds more cash than debt on its balance sheet and that its liquid assets exceed short-term obligations. These factors contribute to the company's financial stability and potential for growth. To access more InvestingPro Tips, such as the company's high revenue valuation multiple and price/book multiple, visit https://www.investing.com/pro/VRNS. There are 11 additional tips available, which can be accessed with a subscription. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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