What happened

Shares of Varonis Systems (VRNS -0.83%) popped nearly 20% last month, according to data provided by S&P Global Market Intelligence, after an analyst issued bullish commentary on the company's shift to a new subscription model. 

So what

Varonis Systems is transitioning its business away from perpetual licenses and toward subscription services. The data security company made substantial progress in this regard during the first quarter.

"31% of our license revenues were from subscription products, as we saw solid adoption, particularly in North America," CEO Yaki Faitelson said in a press release. "Consistent with the pilot we ran in the second half of 2018, we saw new customers purchase a higher number of licenses in initial deals and also saw strong upsell trends from existing customers." 

A person pointing to the word upgrade

Images source: Getty Images.

Wedbush analyst Daniel Ives expects Varonis' decision to switch to a subscription model to benefit the company over the long term. Ives believes the transition will usher in a new phase of growth for the cybersecurity specialist. 

"We believe Varonis' platform offers a broad range of robust features and unique functionalities that differentiate it from traditional data security offerings, which we view very favorably as its market faces secular tailwinds over the next few years," Ives said.

In turn, Ives upgraded Varonis Systems' stock to outperform from neutral and raised his price target to $85 per share from $55.

Now what

Varonis Systems is just scratching the surface of its massive market opportunity. The company's $275 million revenue forecast for 2019 represents less than 2% of its $16 billion total addressable market. And with cyber attacks increasing in frequency and sophistication, Varonis Systems' data security services should continue to enjoy robust demand in the years ahead.

Moreover, even after its April gains, Varonis' stock is still approximately 20% below Ives' price target. If he's correct, the stock could enjoy significant upside from today's levels.