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Varonis Beats 3Q Profit Estimates; Shares Spike 9%

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Shares of Varonis Systems jumped 9% in Monday's extended trading session after the data security software provider reported adjusted EPS of $0.06 that exceeded analysts’ expectations of a loss per share of $0.13. The bottom-line result also compared favourably with the year-ago quarter’s adjusted loss per share of $0.16 mainly driven by strong top-line growth.

Varonis Systems’ (VRNS) 3Q revenues jumped 17% year-over-year to $76.8 million and beat the Street consensus of $70.2 million. Overall quarterly sales benefitted from an 89% increase in subscription revenues partially offset by a 5% decline in maintenance and services revenues.

Varonis CEO Yaki Faitelson said, "New and existing customers continue to make larger initial investments in Varonis and consume more licenses over time, underscoring the logic behind our subscription transition and confirming that we are unleashing the potential of our platform. With the subscription transition now complete, 98% of our revenues today are recurring in nature, and the demand for our platform, combined with the power of the subscription model, is accelerating revenue growth and driving increasing operating leverage." (See VRNS stock analysis on TipRanks).

Buoyed by solid quarterly performance, Varonis expects 4Q revenues to be between $82 million and $85 million, surpassing analysts' estimates of $79.9 million. Adjusted EPS is forecast in the range of $0.10-$0.13. Analysts had expected a loss of $0.05 per share.

In addition, Varonis announced an agreement to acquire Polyrize for an undisclosed amount. According to the company, “Polyrize offers software that maps and analyzes the relationships between users and data across a number of cloud applications and services, including Google Suite, Salesforce, Okta, GitHub, Slack, Amazon S3 and others, making it simple for security teams to control access to cloud data and infrastructure and analyze cloud activity.”

Following its earnings release, Robert W. Baird analyst Jonathan Ruykhaver raised the stock’s price target to $131 (7% upside potential) from $120 and reiterated a Hold rating. In a note to investors, Ruykhaver wrote, “Varonis has shown nice momentum in cloud data stores in recent quarters and also announced its intent to acquire Polyrize to help further build out its cloud-focused offerings. Overall, Varonis continues to drive strong execution despite the macroeconomic environment.” Moreover, citing the company’s strong long-term growth opportunities, the analyst justifies its premium valuation against peers.

Currently, the Street is bullish on the stock. The Strong Buy analyst consensus is based on 11 Buys and 3 Holds. With shares up 57.5% year-to-date, the average price target of $129.08 implies further upside potential of about 5.4% to current levels.

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