Tuesday, Baird updated its assessment of Varonis Systems (NASDAQ:), increasing the price target to $50 from $48, while maintaining a Neutral rating on the stock. The firm acknowledges the company’s significant progress in its transition to a software-as-a-service (SaaS) model. Varonis’ SaaS now accounts for approximately 30% of its annual recurring revenue (ARR), marking an increase from about 23% in the previous quarter.
The analyst from Baird noted that Varonis is on track to surpass its fiscal year 2024 target of approximately 46% SaaS contribution to ARR. The company’s Managed Detection and Response (MDDR) product has been instrumental in securing new customers and has been a key factor in the ARR growth, which is approximately 17% year-over-year and slightly above consensus estimates.
The report highlighted the potential for Varonis’ rapid SaaS transition to boost revenue growth, especially with the company’s first disclosure of SaaS revenue figures. Investors seem inclined to overlook the delays in revenue recognition, focusing instead on the long-term benefits of the company’s conversion to a SaaS model.
Baird’s stance remains Neutral based on current valuation, but the firm is beginning to view Varonis more favorably as it moves into the second half of the year. This optimism is due to the company’s solid execution of its business strategy. The firm is looking for clear indicators of substantial conversions and potential advantages from the use of artificial intelligence before adopting a more bullish stance.
InvestingPro Insights
As Varonis Systems (NASDAQ:VRNS) continues its transition to a SaaS model, real-time data from InvestingPro provides additional context for investors considering the stock. With a market capitalization of $4.86 billion, Varonis boasts an impressive gross profit margin of 85.63% in the last twelve months as of Q4 2023. The company’s revenue growth for the same period stands at 5.39%, with a quarterly spike of 8.05% in Q4 2023, underscoring its potential for sustainable growth.
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InvestingPro Tips highlight that Varonis holds more cash than debt, indicating a solid financial position. Additionally, the company is noted for its high return over the last year, with a 93.62% price total return, and analysts predict profitability within the year. It’s worth noting, though, that 14 analysts have revised their earnings expectations…
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