VRNS update

Here is my original write up for Varonis, http://discussion.fool.com/tomg39s-second-stock-varonis-systems-… .

What I wrote previously. Varonis Systems at its core is a data management company bundled as a security company. They implement a metadata (data about data) framework on top of your existing data system which allows them to provide near real time analysis and threat detection on your data. They have multiple different products which all ultimately are based on making sure your data is appropriately managed and accessed. Using their metadata they make sure the correct people have access to the correct files, file permissions are correct, out of data permissions are retired, sensitive data is appropriately secured, user behavioral analysis(is joe blow copying all your sensitive files to a thumb drive type of thing), audit trail management, and I’m sure more things that I’m missing.

Year Revenue in millions (% growth)
2011 40
2012 53 (32% growth)
2013 75 (41.5%)
2014 101 (26%)
2015 127 ( 30%)
2016 164 (32% yoy growth, they were guiding 28% growth or 210 million revenue)
2017 217

They added 330 customers up from an a normal of 200-250. Now up to 6250 customers

Their average selling price (ASP) increased to 83k from 65K!!

Maintain a gross margin of 92%
Operating margin improved from 14.9% q4 16 to 16%.

Net income from 7 million q416 to 11.2million q4 17

Revenue guidance continues to be relatively pedestrian at 21-23%.

VRNS continues to execute and it appears that they are in the beginning of accelerating growth due to GDPR or (General Data Protection Regulation). The law goes into effect in the EU in May 2018. I see this as a driver for customer growth and once companies are in the VRNS data management ecosystem they tend to buy more products. For example US revenues grew 28% (no GDPR) while EMEA revenues increased 52%. The EU has been a leader in privacy and data management and I wouldn’t be surprised to see other regions following suite eventually. VRNS’s ASP is increasing and the # of customers buying more than one product is increasing, in 2010 only 27% did, 2015 was up to 45% and now in 2017 up to 52%. All in all everything is moving in the direction it should be. Margins are improving, they are landing customers and increasing their sales to existing customers. 2018 will have a higher capex which may temporarily make the picture look less rosey but they are just getting ready for their next phase of growth. I’m happy with my position and will probably buy more as I think they will handily beat expectations.



I cannot seem to make my mind up on this one. Its valuation does not seem cheap for a company growing revenues at a 30% clip. I like to think of it as a potential M&A target for the likes of CSCO but otherwise not convinced by statements on its TAM in such a crowded space