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Darktrace
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=== Risks to profitability === With low barriers to entry and high competition in the markets Darktrace operates in, JP Morgan believes that customer acquisition and retention will get tougher going forward. This may lead to higher customer acquisition costs and prompt Darktrace to increase investments in existing and new product development. While Darktrace may report healthy near-term growth, the eventual success of the company will be determined based on how the company balances growth and profitability. Assessing this development through the lens of ‘Rule of 40’ (revenue growth + FCF margin) is a good indicator of the progress the company is making to sustain profitable growth. JP Morgan expects the sum of revenue growth and FCF margin to dip and remain below 40% over the next couple of years. Eventually, this is likely to reflect in Darktrace’s valuation compared to other cybersecurity peers that consistently beat this 40% benchmark, in JP Morgan's view.
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