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Darktrace
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== Shifting the focus to profitability == Darktrace has delivered ‘beat and raise’ results in its short reporting history since IPO in Apr-21. The company has raised its: * 2022 (FY ending in Jun) revenue growth guidance 5 times since IPO from 27- 30% to 44.5-46.5%; * 2022 ARR growth guidance 4 times from 26.5-28.5% to 38.5-40% and * 2022 adjusted EBITDA margin guidance 3 times from 1-4% to 10-12%. In the near term, JP Morgan expects demand for AI-led detection and response solutions to remain high – this coupled with Darktrace’s brand awareness (supported by its high marketing spend), investment in additional salesforce hiring and the roll-out of the new ‘Prevent’ product offering will likely translate to healthy new customer acquisition and thus ARR growth, in JP Morgan's view. JP Morgan estimates constant currency ARR and revenue growth of 39%/48% in ’22, respectively. However, Darktrace’s customer stickiness is likely to be low, in JP Morgan's view – a function of high competition and potential commoditization of offerings targeting similar security use-cases and as enterprise awareness of competing vendor offerings increases. This could eventually translate to higher customer churn, in JP Morgan's view. With ARR growth tied to new customer acquisition, JP Morgan believes that higher customer acquisition costs and lower customer retention are likely to challenge the company’s ability to deliver profitable growth. JP Morgan acknowledges that this may take some time to play out, especially in the current environment, where demand for proactive security solutions is likely to remain high. In JP Morgan's view, in order to see a sustained improvement in share price performance, Darktrace needs to demonstrate a decoupling between ARR growth and new customer acquisition & investment in sales headcount – this will be a function of a sustained increase in average contract ARR per new customer, lower churn, and continued improvement in net ARR retention rate (a function of higher upsell/cross- sell). Our estimates for 2022/23/24 revenue stand 1%/2%/5% higher than Bloomberg consensus estimates; JP Morgan expects the company to deliver adjusted EBITDA margin at the high end of its guidance range in 2022; however, JP Morgan's estimates for 2023/24 adjusted EBITDA stand 22%/4% below consensus estimates. {| class="wikitable" |+Table 8: Darktrace Revenue and adjusted EBITDA: FY22-24E - JPMe vs. consensus<ref>Source: J.P. Morgan estimates, Bloomberg Finance L.P.</ref> !FY ends in Jun ! colspan="3" |FY22 ! colspan="3" |FY23 ! colspan="3" |FY24 |- !$ (m) !JPMe !Cons. !Diff. (%) !JPMe !Cons. !Diff. (%) !JPMe !Cons. !Diff. (%) |- |Revenue |415.5 |409.6 |1.4% |548.1 |536.5 |2.2% |701.5 |670.2 |4.7% |- |Adj. EBITDA |49.2 |48.6 |1.3% |47.2 |60.4 |<nowiki>-21.9%</nowiki> |81.0 |84.6 |<nowiki>-4.3%</nowiki> |- |margin (%) |11.8% |11.9% |<nowiki>-2bps</nowiki> |8.6% |11.3% |<nowiki>-265bps</nowiki> |11.5% |12.6% |<nowiki>-108bps</nowiki> |}
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