Darktrace drops on 'underweight' initiation by JPM

Tenable Holdings

05/04/2022 09:43

** Darktrace  DARK.L  shares fall 6.9%, paring losses after
falling as much as 7.8%, after J.P. Morgan Cazenove initiates
the British cybersecurity firm at "underweight" with a price
target of 400p
    ** "We believe that higher customer acquisition and
retention costs are likely to challenge the company's ability to
deliver profitable growth", the broker says
    ** The firm operates in a market characterised by low
barriers to entry and high competition, with vendors offering
different combinations of point security solutions, while
Darktrace's are a complement rather than a replacement for other
point security tools, the broker points out 
    ** It sees a risk of commoditisation of solutions targeting
the use-cases addressed by Darktrace, adding there is also risk
from public cloud vendors - such as Microsoft  MSFT.O , Google
 GOOGL.O  and Amazon  AMZN.O  - making a push into areas of
cloud traffic and email security
    ** Relatively low platform lock-in and customer stickiness
will likely translate into higher customer acquisition costs and
prompt investments in existing and new product developments,
limiting margin leverage, says JPM
    ** It expects the sum of revenue growth and FCF margin to
dip and remain below the 40% benchmark over the next couple of
years, compared to cybersecurity peers who consistently beat it
    ** JPM believes there are "better opportunities elsewhere",
namely in peers Crowdstrike  CRWD.O , CyberArk  CYBG.F , Tenable
 TENB.O  and Varonis  VRNS.O 

 (Reporting by Elena Vardon)
 ((elena.vardon@tr.com))