Darktrace lowers earnings forecast as sales commission changes
British cyber security specialist Darktrace dimmed its outlook for 2024 causing shares to dip more than 4.5 per cent by the afternoon.
Darktrace, which recently cleared its name following allegations of bad books, posted a 31.3 per cent revenue growth in 2023 in its full year results.
However, its forecast earnings before interest, tax, depreciation and amortisation may only rise 17 to 19 per cent next year, down from a previous 22 per cent forecast in July.
This is due to a decision to pay 100 per cent of its sales commissions up front instead of 50 per cent up front and 50 per cent a year later.
With the shift, Darktrace aims “to better align with market practices and improve our ability to hire and retain experienced talent,” chief financial officer Cathy Graham said.
Long-term, the company does not expect the move to harm its finances.
Davy Analyst James Musker said Darktrace’s full year results were “largely a success,” although next year could be dampened by free cash flow expectations as commissions move to 100 per cent up front.
“I think it’s this change in commission payments that’s brought the stock down this morning, a short term hit to FCF unlikely to make investors unhappy, particularly if they’re valuing on a FCF basis… otherwise it’s a strong print – PBT beat and an upgrade to the guide,” Musker added.
New customer additions have stuttered at a nearly 14 per cent slower rate in 2023 than the year before, due to pressure on business budgets.
“The macro-economic backdrop has been a headwind for many businesses over the past year, and we have not been immune from its impact,” said chief executive Poppy Gustafsson, who co-founded the company in 2013.
While businesses carefully watch where they put their precious cash, cyber attacks are increasing according to GCHQ’s National Cyber Security Centre, which predicts “unpredictable targeting or unintentional escalation”.
Darktrace uses AI in its cyber security services to help organisations identify and defend against attacks.
Gustafsson said it is a “watershed” moment for AI and it creates a “unique opportunity” for Darktrace.
“At Darktrace we are AI-native,” she added. “Our technology has been built from the ground up by AI experts over 10 years, with AI its core. Our AI is future-proofed, because it has been designed to identify novel threats, irrespective of how that threat emerged, or what latest capability fuelled it.”