By Geoffrey Smith
Investing.com -- Shares in U.K. cybersecurity company Darktrace (LON:DARK) plummeted in early trading on Thursday in London after U.S. private equity group Thoma Bravo decided not to go ahead with a possible takeover.
Darktrace stock fell 30% on the news, more than reversing the leap it had made when Thoma Bravo had first announced its interest in the company in August.
The news overshadowed Darktrace's release of full-year results for the 12 months through June, which showed solid growth and profitability in its core businesses.
The company said revenue rose 46% on the year, thanks to a 32% increase in customer numbers, at a gross profit margin that edged down only marginally to 89.2% from 90% in fiscal 2021. Adjusted earnings before interest, taxes, depreciation and amortization nearly tripled to $91 million, while the bottom line swung to a profit of $1.5 million from a loss of $146 million a year earlier.
The figures had to be tweaked because of an accounting error that had initially led it to recognize some fiscal 2021 revenue in fiscal 2022. As such, fiscal 2022's revenue is slightly less than initially estimated.
Darktrace, which reports in dollars but earns much of its revenue in the U.K. where it bills in sterling, said it expects a hit to revenue of up to 7% this year from the fall in the pound's value. It also predicted a stronger rise in operating costs due to input price inflation and the lifting of COVID-related travel restrictions, but upheld its existing forecast of 31%-34% growth in full-year revenue.
Analysts said that Darktrace stock is likely to suffer from doubts as to what caused Thoma Bravo to walk away from a deal after conducting its due diligence.
“It now begs the question whether the bid-ask spread was too wide to breach or whether there was something more sinister behind the curtain,” Olivetree's event-driven desk said in a note to clients. “There will probably not have been enough time for Thoma Bravo to have taken a good look at the books, but we find it a little odd that the PE fund did not wait to at least see today’s results release.”
Darktrace has been dogged by governance concerns since its foundation due to its links with Mike Lynch, who is appealing against extradition to the U.S. to face fraud charges arising from the sale of his previous software business Autonomy to HP (NYSE:HPQ) in 2012.
"While investors are keen to buy cybersecurity assets in the UK, especially with the GBP at multi-decade lows, Darktrace’s risk profile is considered higher," analysts at Tradition wrote in a note to clients.