Varonis Systems (VRNS) jumped after a solid Q3 earnings report and the stock has since seen continued momentum. It’s time to buy this seller of security software that’s used to protect enterprise data, counsels Tyler Laundon, editor of Cabot Early Opportunities.
That data includes sensitive files and emails to confidential customer and patient records, financial data, strategic and product development plans, and so much more. The company is benefiting from a successful transition to the SaaS business model and there’s a potential AI boost to consider as well.
On the latter note, one of the biggest challenges for large companies looking to develop generative AI capabilities is how they protect their data. They need a very clear data governance framework that stops large language models (LLM) from leaking all the info they try so hard to protect.
Varonis Systems (VRNS)
That spells opportunity for Varonis, who specializes in setting data security and governance standards. As Morgan Stanley says, Varonis could become a “key enabler of Generative AI adoption within the enterprise.” When management reported Q3 results a few weeks ago, they called AI a “game changer,” saying the technology should continue to boost growth as data governance becomes increasingly important.
Turning back to the SaaS transition, Varonis is blasting by its early goals to move to the cloud. When it first laid out its transition plans a few years ago, management called for 15% of new bookings to be SaaS revenue in 2023. In the recently reported third quarter of 2023, 59% of new business was under the SaaS model, well above expectations for 45%. SaaS now accounts for 15% of annualized revenue.
With just one quarter left in the year, analysts now see Varonis growing revenue by about 5% to $496.7 million. Keep in mind that revenue grew north of 21% last year, and that it’s expected to reaccelerate to nearly 10% in 2024.
On the profitability front, EPS should be up around 78% to $0.32 this year. Then analysts are penciling in just 10% EPS growth next year. I think that number is low, and actual EPS growth in 2024 will be more in the 30% to 60% range.
Recommended Action: Buy VRNS