Varonis Earnings: Financial Results Remain Affected as Cloud Transition Picks up Steam

We are raising our fair value estimate for no-moat Varonis to $30 from $25 after the firm reported strong fourth-quarter results to close out 2023. We continue to be optimistic about Varonis’ cloud transition with software-as-a-service, or SaaS, now making up more than 23% of the firm’s annual recurring revenue, or ARR. At the same time, we expect macroeconomic pressures to gradually dissipate over the next year, lessening the impact of macroinduced longer sales cycles and increased budgetary scrutiny on Varonis’ business. Despite our fair value increase, we remain unable to rationalize Varonis’ valuation and continue to view the firm’s shares as overvalued. For investors seeking cybersecurity exposure, we’d point to Fortinet, a wide-moat security company that currently trades in the 3-star range.