Technology

Why CyberArk Was Treated So Poorly Despite the Earnings Beat

Jon C. Ogg

Published: February 12, 2020 1:55 pm

There is no shortage of potential business and upside to go around when it comes to cybersecurity. This is a field that is still wide open and is underinvested within software and technology. Businesses know that they have to spend capital to protect their infrastructure and all their data. While the upside is high and while the field is wide open for opportunities, there are more than a handful, and maybe more than a few handfuls, of companies that are eager and willing to offer cybersecurity services.

CyberArk Software Ltd. (NASDAQ: CYBR) has become one of the well-known companies in this space and, despite beating earnings expectations, its shares were knocked down quite sharply based on guidance.

With adjusted earnings rising 9% to $0.97 per share and with revenues rising 19% to $129.7 million in the most recent quarter, these figures beat the consensus targets of $0.81 per share and $126.4 million in sales. While total sales rose 19%, its licensing revenues were up 15%, with maintenance and professionals services seeing a 26% gain. The company’s total deferred revenue rose by 27% from a year earlier to end 2019 at $190.4 million.

Where things went awry was in the guidance. CyberArk provided a range of $0.35 to $0.41 per share in earnings on revenues of about $108 million. The consensus was calling for $0.55 per share and over $113 million in sales. The company’s 2020 guidance was a range of $2.26 to $2.38 per share on closer to $515 million in revenues. Those consensus estimates were $2.70 per share and $510 million in annual sales.

On the plus side, CyberArk more than doubled its cash from a year earlier to end the year with $1.1 billion in cash and short-term instruments.

CyberArk is no stranger to volatility, and its shares recently peaked at roughly the same level as a year ago before a big drop last summer. Its pre-earnings close was $138.60, but that was more or less where it peaked in mid-January, after ending 2019 at $116.58. The problem that shareholders may have this time around is that CyberArk stock went down closer to $100 a share after last summer, before using a base to accelerate back up. Another issue is that options traders had a stronger call option bias that signals they were caught off-guard here.

CyberArk’s approach to security is in privileged access management. This aims to protect privileged accounts, employees or management, with various levels of credentials, from being targeted to gain administrative access to computers or systems. The company also claims to have than 50% of the Fortune 500 as customers and its headquarters in Israel is not unusual in the cybersecurity space.

Udi Mokady, CyberArk’s board chair and chief executive, was more positive in the statement than the reaction that was seen. That statement said:

Our record fourth quarter results capped off another great year of strong growth driven by disciplined investments. We were thrilled to win a record number of logos in the fourth quarter, signing nearly 300 new customers. Throughout 2019, organizations continued to recognize that protecting privileged access is foundational to a comprehensive security program and increasingly turned to CyberArk as a trusted advisor, particularly to secure mission-critical digital transformation and cloud migration strategies. Our clear leadership position in the market and ongoing commitment to deliver innovation, positions us well to deliver profitable growth in 2020 and beyond.

CyberArk stock traded down 14.4% at $118.65 on Wednesday afternoon, and the 4.3 million shares that had traded before 2:00 p.m. was already about seven times normal for a full day. With a 52-week trading range of $85.91 to $148.74, CyberArk’s pre-earnings consensus target price from analysts was $146.95.

Investors in cybersecurity have had to grow used to be what would be called “great hits followed by big misses” when it comes to analyzing these earnings reports. This may just be another one of those instances where more patience will be required ahead.

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