Varonis Earnings: Cloud Transition Execution Is Strong as Firm Navigates Tough Macro Conditions

We are raising our fair value estimate to $25 from $22 for no-moat Varonis after the firm closed out its second quarter with strong financials including higher-than-expected annual recurring revenue, or ARR, growth. As we have highlighted previously, Varonis is moving its solutions over to the cloud, which stands to have an impact on near-term profitability and revenue growth. We believe Varonis’ cloud transition is the right step and necessary in a cloud-first world, in which customers increasingly look to cloud security solutions to protect their IT assets. At the same time, however, we believe that heightened budget scrutiny during a time of macro uncertainty could damp Varonis’ financial performance. Varonis’ shares are up 2% after hours, and we view them as currently fairly valued relative to our updated valuation.