Varonis Earnings: SaaS Transition Is Going Strong Even as Macro Tightness Elongates Sales Cycles

We maintain our $22 fair value estimate for no-moat Varonis Systems after the company reported first-quarter financial results largely in line with our expectations. As a company in the middle of a SaaS transition, we expect Varonis’ near-term profitability and revenue growth to be affected as clients switch over to its SaaS offering, with lower upfront revenue recognition negatively affecting sales growth and operating margins. We also believe that the firm’s cloud transition could open it up to heightened churn as customers, instead of adopting Varonis’ SaaS offering, could opt for a competitor’s platform. More near term, however, we expect continued demand for Varonis’ SaaS offering. We believe that in a period of heightened budget scrutiny, Varonis’ SaaS platform may find willing buyers due to its lower upfront costs relative to its on-premises offering. Varonis’ shares are trading flat afterhours and we view them as currently fairly valued.