Varonis Earnings: Cloud Transition Remains Strong as Tough Macro Continues to Elongate Sales Cycles

We are maintaining our $25 fair value estimate for no-moat Varonis after the firm reported its third-quarter financial results with a weaker-than-expected top line offset by improved cash generation. Encouragingly, the firm continued to execute strongly on its software-as-a-service transition, with Varonis SaaS now making up more than 15% of the firm’s annual recurring revenue, or ARR. At the same time, we believe the firm’s near-term results will continue to be affected as customers confront a turbulent macroeconomic environment with financial prudence and budgetary scrutiny leading to longer sales cycles. The firm’s shares traded flat afterhours and we view them as overvalued. For investors seeking cybersecurity exposure, we’d point to moatier companies under our coverage from both a valuation and a quality perspective.