The market value of Darktrace has fallen to the lowest level since floating almost two years ago after the British cybersecurity company warned about slowing numbers of customers signing up for products.
The warning prompted a drop in the share price of the company, based in Cambridge, which positions itself as a potential European superpower in the US-dominated cybersecurity space but had its business model criticised last year.
Shares in Darktrace, whose co-founder Mike Lynch continues to fight extradition to the US on fraud charges, fell by as much as 18% on Wednesday, below the 250p level at which it debuted on the London Stock Exchange in April 2021, making it one of the biggest fallers on the FTSE.
The company, whose market capitalisation of £1.8bn is far from the heady highs of almost £7bn months after flotation, said it had underestimated the impact of economic uncertainty on its business.
Cathy Graham, the chief financial officer, said: “The current macroeconomic environment is creating challenges to winning new customers, with prospects reluctant to run product trials and, in regions with historically higher conversion rates, those rates are starting to decline. Against this backdrop of weaker trends and continuing uncertainty, we are being prudent and revising our full-year guidance.”
Darktrace is led by Poppy Gustafsson, a former Autonomy executive who co-founded it in 2013 aged 30.
Analysts at the bank Berenberg pointed out that while the 421 new customers added in the three months to the end of December represented a 31% quarter-on-quarter increase, the number was almost one-quarter lower than the 556 new sign-ups in the same period in 2021.
Darktrace, whose financial year ends on 30 June, said: “Late in the second quarter, it became clear that the impact on new customer growth had been larger than expected.”
The company said it was focusing on bringing in bigger clients and upselling existing ones, resulting in new customer accounts worth on average 17% more in revenue than those signed up in 2021 and contract renewals up by 12%.
However, the downturn in business has led Darktrace to downgrade full-year guidance for growth in annual recurring revenue, regular spending by existing clients and total revenue.
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Analysts at the bank Jefferies and Berenberg said the cybersecurity sector is experiencing similar growth issues, with the value of stocks down by 45% last year.
Graham said: “Despite expecting growth to remain slower for the rest of the financial year, we expect to emerge from this uncertain period in an even stronger position. [We will] capitalise on our very large market opportunity and demonstrate to customers and investors that a period of economic adversity has not hindered what we believe is our unique and sustainable value proposition.”
