Varonis Systems Inc VRNS

Varonis Earnings: An On-Track Cloud Transition Continues to Weigh Down Margins

We are maintaining our fair value estimate for no-moat Varonis at $30 following a robust first-quarter earnings report. The firm made considerable headway in its transition to its cloud-based software-as-a-service offering, which now makes up 30% of its annual recurring revenue. We expect tight macroeconomic conditions to persist in the near term, causing high budgetary scrutiny to continue as a headwind. However, as macro pressures ease up, we anticipate a reduction in elongated sales cycles and greater customer spending, combined with scale-based operating leverage, to boost margins. Shares rose marginally afterhours, but we remain skeptical of the market’s valuation of Varonis and continue to view shares as overvalued.