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Why Shares of Varonis Tumbled Today

By Timothy Green – Updated Apr 25, 2019 at 12:13AM

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The data security and analytics company provided weak guidance amid a shift to subscriptions.

What happened

Shares of data security and analytics company Varonis (VRNS 0.71%) slumped on Tuesday following a fourth-quarter report that featured disappointing guidance. Varonis beat analyst estimates across the board for its fourth-quarter results, but its outlook fell well short of expectations. The stock was down about 15.5% at 12:40 p.m. EST today.

So what

Varonis reported fourth-quarter revenue of $87.5 million, up 20% year over year and just slightly above the average analyst estimate. The company added 275 new customers during the quarter, down from 327 added during the prior-year period.

A declining chart.

Image source: Getty Images.

Non-GAAP earnings per share came in at $0.54, up from $0.40 in the fourth quarter of 2017 and $0.20 higher than analysts were expecting. GAAP EPS was $0.20, down from $0.22.

Those revenue and earnings beats were overshadowed by Varonis' guidance. The company expects first-quarter revenue between $58.5 million and $60 million, up just 9% to 12% year over year. Analysts were expecting revenue guidance of $62.36 million. First-quarter non-GAAP EPS is expected to be a loss of $0.36 to $0.38, well in excess of the loss of $0.23 analysts were expecting.

Varonis' full-year guidance also missed the mark. The company sees revenue between $297 million and $305 million, up 10% to 13% from 2018, along with non-GAAP EPS between $0.04 and $0.16. Analysts were expecting revenue of $318.12 million and non-GAAP EPS of $0.32.

Check out the latest Varonis earnings call transcript.

Now what

Varonis is planning to transition from perpetual licenses to a subscription-based model in 2019. "We believe this will provide a faster pathway for customers to realize more of the value of our broad platform and for Varonis to capture more of our total addressable market and increase customer lifetime value," said CEO Yaki Faitelson.

Moving to a subscription model will hurt revenue growth in the short term as revenue is recognized over time instead of up front. With the stock tumbling following the news, investors clearly aren't thrilled with the downside of Varonis' subscription push.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Varonis Systems. The Motley Fool has a disclosure policy.

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