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Varonis Systems (VRNS)
NASDAQ:VRNS

Varonis Systems (VRNS) AI Stock Analysis

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Varonis Systems

(NASDAQ:VRNS)

57Neutral
Varonis Systems shows strong revenue growth and improving cash flow, but struggles with profitability and leverage management. Technical analysis indicates bearish momentum, and valuation metrics highlight challenges, particularly due to a negative P/E ratio. Positively, the company's transition to a SaaS model is progressing well, as highlighted in the latest earnings call.
Positive Factors
Customer Acquisition
Strong new customer acquisition is highlighted by a significant year-over-year increase in ARR from new customers, positioning the company for future upsell opportunities.
Market Position
The company's current market cap and category-leading position are appealing to potential buyers in a rapidly consolidating security market.
SaaS Transition
VRNS expects its SaaS transition to be completed two years earlier than original plans, with ARR from SaaS expected to account for approximately 78%.
Negative Factors
Financial Performance
Operating Margin and Revenue missed due to the accelerated SaaS transition.
SaaS Transition Challenges
Encouraging to see the more rapid pace of SaaS adoption, this likely also fuels investor concerns around an 'air pocket' next year once the majority of the base migrates to SaaS.
Stock Performance
The 18% ARR growth was below expectations, leading to shares trading down 26% over the last 6 months, making VRNS the 3rd worst performing name in software coverage.

Varonis Systems (VRNS) vs. S&P 500 (SPY)

Varonis Systems Business Overview & Revenue Model

Company DescriptionVaronis Systems, Inc. provides software products and services that allow enterprises to manage, analyze, alert, and secure enterprise data in North America, Europe, the Middle East, Africa, and internationally. Its software enables enterprises to protect data stored on premises and in the cloud, including sensitive files and emails; confidential personal data belonging to customers, and patients and employees' data; financial records; strategic and product plans; and other intellectual property. The company offers DatAdvantage that captures, aggregates, normalizes, and analyzes every data access event for users on Windows and UNIX/Linux servers, storage devices, email systems, Intranet servers, cloud applications, and data stores; and DatAlert that profiles users, devices, and their behaviors related to systems and data, detects and alerts on deviations that indicate compromise, and provides a Web-based dashboard and investigative interface. It also provides Data Classification Engine that identifies and tags data based on criteria set in various metadata dimensions, as well as provides business and information technology (IT) personnel with actionable intelligence about data; and DataPrivilege, which offers a self-service Web portal that allows users to request access to data necessary for their business functions, and owners to grant access without IT intervention. In addition, the company provides Data Transport Engine, which provides an execution engine that unifies the manipulation of data and metadata, translating business decisions, and instructions into technical commands, such as data migration or archiving; and DatAnswers that offers search functionality for enterprise data. Varonis Systems, Inc. sells products and services through a network of distributors and resellers. The company serves IT, security, and business personnel. Varonis Systems, Inc. was incorporated in 2004 and is headquartered in New York, New York.
How the Company Makes MoneyVaronis Systems generates revenue primarily through the sale of software licenses and subscriptions for its data security and analytics platform. The company's revenue model is based on a combination of perpetual and term licenses, as well as subscription-based offerings. Key revenue streams include the sale of licenses for their data protection and threat detection solutions, as well as professional services and customer support. Varonis also earns money through renewals and upselling additional features or expanded coverage to existing customers. Strategic partnerships with technology vendors and system integrators can also play a role in expanding their market reach and customer base, contributing to revenue growth.

Varonis Systems Financial Statement Overview

Summary
Varonis Systems exhibits a robust revenue growth trajectory and improving cash flow metrics, which are positive indicators for future performance. However, the company faces challenges in achieving profitability and managing leverage, as evidenced by negative EBIT and high debt levels. The financial health is moderately stable but requires careful management to sustain growth and improve profitability.
Income Statement
60
Neutral
Varonis Systems has shown steady revenue growth over the years, with a revenue increase from $254.19 million in 2019 to $550.95 million in 2024. The gross profit margin is strong, consistently above 80%. However, the company has struggled with profitability at the net level, showing a net loss in most years except 2024. The EBIT and EBITDA margins are negative, indicating operational challenges.
Balance Sheet
55
Neutral
The company's balance sheet shows a high debt-to-equity ratio, which increased significantly in 2024, indicating potential leverage risk. The equity ratio has been declining, suggesting reduced financial stability. However, the company has managed to maintain positive stockholders' equity over the years.
Cash Flow
65
Positive
The cash flow statement reveals a positive trend in operating cash flow, particularly in 2024. Free cash flow has improved significantly, displaying strong growth from 2023 to 2024. The operating cash flow to net income ratio is healthy, reflecting efficient cash management despite previous years of negative free cash flow.
Breakdown
Dec 2024Dec 2023Dec 2022Dec 2021Dec 2020
Income StatementTotal Revenue
550.95M499.16M473.63M390.13M292.69M
Gross Profit
457.10M427.41M403.80M330.74M248.43M
EBIT
-117.65M-117.22M-121.23M-98.69M-78.42M
EBITDA
-65.17M-70.55M-82.04M-98.69M-68.51M
Net Income Common Stockholders
34.64M-100.92M-124.52M-116.86M-94.01M
Balance SheetCash, Cash Equivalents and Short-Term Investments
568.42M533.72M732.49M807.61M298.26M
Total Assets
1.66B1.10B1.04B1.11B555.48M
Total Debt
743.56M311.84M316.46M294.02M273.00M
Net Debt
568.82M81.10M-51.34M-511.74M38.91M
Total Liabilities
1.21B614.26M541.61M511.94M461.41M
Stockholders Equity
455.66M489.65M502.13M596.59M94.07M
Cash FlowFree Cash Flow
108.51M54.32M475.00K-3.31M-15.96M
Operating Cash Flow
115.20M59.42M11.87M7.18M-5.84M
Investing Cash Flow
-532.25M-143.08M-374.25M54.38M-54.75M
Financing Cash Flow
371.90M-53.40M-75.58M510.11M225.75M

Varonis Systems Technical Analysis

Technical Analysis Sentiment
Neutral
Last Price41.35
Price Trends
50DMA
41.94
Negative
100DMA
44.57
Negative
200DMA
48.88
Negative
Market Momentum
MACD
-0.35
Negative
RSI
44.80
Neutral
STOCH
35.15
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For VRNS, the sentiment is Neutral. The current price of 41.35 is above the 20-day moving average (MA) of 40.72, below the 50-day MA of 41.94, and below the 200-day MA of 48.88, indicating a neutral trend. The MACD of -0.35 indicates Negative momentum. The RSI at 44.80 is Neutral, neither overbought nor oversold. The STOCH value of 35.15 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for VRNS.

Varonis Systems Risk Analysis

Varonis Systems disclosed 56 risk factors in its most recent earnings report. Varonis Systems reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks

Varonis Systems Peers Comparison

Overall Rating
UnderperformOutperform
Sector (57)
Financial Indicators
Name
Overall Rating
Market Cap
P/E Ratio
ROE
Dividend Yield
Revenue Growth
EPS Growth
73
Outperform
$4.27B24.7541.09%10.40%14.78%
BOBOX
72
Outperform
$4.19B21.16189.40%5.05%103.11%
SS
64
Neutral
$5.57B-17.68%32.25%20.56%
63
Neutral
$3.83B-9.73%12.68%54.80%
RPRPD
61
Neutral
$1.49B57.78164.75%8.53%
57
Neutral
$18.45B9.41-13.97%2.74%5.04%-23.56%
57
Neutral
$4.28B-20.26%10.38%6.88%
* Technology Sector Average
Performance Comparison
Ticker
Company Name
Price
Change
% Change
VRNS
Varonis Systems
41.35
-4.22
-9.26%
QLYS
Qualys
125.73
-39.67
-23.98%
BOX
Box
30.30
2.92
10.66%
RPD
Rapid7
24.75
-25.27
-50.52%
TENB
Tenable Holdings
33.99
-14.80
-30.33%
S
SentinelOne
18.83
-3.32
-14.99%

Varonis Systems Earnings Call Summary

Earnings Call Date: Feb 4, 2025 | % Change Since: -11.72% | Next Earnings Date: May 5, 2025
Earnings Call Sentiment Neutral
The earnings call highlighted strong progress in Varonis' SaaS transition and new customer growth, alongside significant milestones in free cash flow and ARR contribution margin improvements. However, these positive developments were tempered by headwinds in revenue growth and operating margins due to the SaaS transition, as well as pressures on the net retention rate.
Highlights
Significant SaaS Transition Progress
In 2024, Varonis added over $200 million of SaaS ARR, ending the year with approximately $340 million of SaaS ARR or 53% of total company ARR. This progress is ahead of schedule, with the transition expected to complete by the end of 2025, a year earlier than previously anticipated.
Strong New Customer Growth
ARR per new customer grew approximately 20% year-over-year, and new business ACV grew by 50%. This growth was driven by the simplicity of the SaaS platform, MDDR, and demand for GenAI-related solutions.
Free Cash Flow Milestone
Varonis generated $108.5 million of free cash flow in 2024, doubling from $54.3 million in the previous year, crossing a significant $100 million milestone.
Record-Breaking ARR Contribution Margin
ARR contribution margin improved to 16.6% in 2024, up from 13.4% last year, indicating significant leverage improvement.
Lowlights
Revenue Growth Headwind
Total revenues for Q4 2024 were $158.5 million, up only 3% year-over-year, with approximately an 18% headwind due to the increased SaaS sales in the bookings mix.
Operating Margin Decline
Q4 2024 operating margin decreased to 9.7% compared to 17.7% in the same period last year, due to a 13% headwind from the SaaS transition.
Net Retention Rate Pressure
Dollar-based net retention rate for subscription customers was 105% at the end of 2024, reflecting limited upsell and cross-sell activity due to the focus on converting self-hosted customers to SaaS.
Company Guidance
During the Varonis Systems, Inc. fourth-quarter 2024 earnings call, the company provided guidance indicating a strong focus on accelerating their transition to a SaaS model. The CEO, Yaki Faitelson, highlighted the substantial progress made in 2024, with SaaS ARR growing by over $200 million and reaching approximately $340 million, representing 53% of total ARR. The company plans to complete this transition by the end of 2025, a year ahead of their previous outlook, expecting SaaS ARR to reach about $580 million, which would be approximately 78% of total ARR. For 2025, Varonis projected ARR growth of 15% to 16%, targeting $737 million to $745 million. Total revenues for the year are expected to grow by 11% to 13%, reaching $610 million to $625 million, with free cash flow anticipated to increase to $120 million to $125 million. The company emphasized the benefits of this transition in driving better retention rates, sales productivity, and upsell opportunities, aiming for a long-term ARR growth target of over 20%.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.