Why Varonis Systems Stock Is Plummeting Today
Key Points
Varonis' Q3 report arrived with an earnings beat, but sales missed expectations.
The company issued weak Q4 guidance and lowered key full-year targets.
Varonis issued a significant downward revision for its full-year annual-recurring-revenue (ARR) forecast.
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Varonis Systems (NASDAQ: VRNS) stock is crashing in Wednesday's trading. The data security specialist's share price was down 47.4% as of 3:15 p.m. ET and had been off as much as 48.9% earlier in the session.
Varonis released its third-quarter results after the market closed yesterday, reporting mixed results. While the company's Q3 report wasn't terrible, management issued forward guidance that is causing investors to rapidly sell out of the stock.
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Varonis stock plummets as Q3 sales growth disappoints
Veronis reported non-GAAP (adjusted) earnings per share of $0.06 for the third quarter -- a performance that actually topped the average Wall Street estimate for adjusted earnings per share by $0.01. On the other hand, sales of $161.6 million in the period fell approximately $4.6 million short of the average analyst estimate. Even though software-as-a-service (SaaS) revenue more than doubled to reach $125.8 million in the period, overall revenue growth of roughly 9% in the quarter fell short of expectations -- and it looks like the business is facing some significant headwinds on the horizon.
What's next for Varonis?
For the fourth quarter, Varonis is guiding for sales to come in between $165 million and $171 million. Meanwhile, the average analyst estimate had called for revenue of approximately $170.8 million in the period. Adjusted earnings per share are projected to be between $0.02 and $0.04 -- with the midpoint of that range being in line with the average analyst estimate's call for a per-share profit of $0.03.
Varonis still expects to close out the year with annual-recurring-revenue (ARR) mix of 83% for its SaaS offerings, but it issued a big drawdown for its sales forecast in the category. ARR was previously projected to come in between $748 million and $754 million, but the company lowered its ARR target to between $730 million and $738 million. While the business has continued making progress transitioning on-premise clients to SaaS solutions, there are some signs of spending cannibalization and indications that some clients are heading elsewhere.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Varonis Systems. The Motley Fool has a disclosure policy.
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