5th Jul 2018 13:31
LONDON (Alliance News) - Around GBP504 million was wiped off the total market value of Sophos PLC on Thursday after the cyber security firm reported a slowdown in billings growth.
Sophos shares were down 17% at 511.00 pence, the worst performer in the FTSE 250.
Billings growth its a key metric for software-as-a-service companies and measures the value of products and services invoiced to customers.
The Abingdon-headquartered company reported billings growth of 6%, up 2% at constant currency, for the quarter ended June. Sophos said it had a "strong performance" in revenue and cash flow, and expects to report mid-teens growth in new customer and network security billings in the period.
In the first quarter last year, billings growth was up 16%, and was 19% higher on a constant currency basis.
According to Sophos, the lower billings were driven by its Enduser security business, which faced a "particularly challenging comparable" period.
Underlying Enduser billings growth in the first quarter of the previous financial year was over 50% at constant currency. The Enduser unit produces cyber security software for personal compuers, laptops and smartphones, protecting users from malware, spam, data loss.
The sharp rise in the demand for the company's Endpoint protection in the first half of last year was driven by high-profile global ransomware attacks, such as WannaCry. Sophos' "next-generation endpoint solution", Intercept X, was also introduced in the first half of the previous financial year's billings for the first time.
Notably, the company warned that these factors will also apply to the second quarter of the current financial year as well.
"Sophos is meant to be a high growth stock - so a 2% underlying increase in billings was never going to cut the ice with investors. More concerning though is that at full year results, just seven weeks ago, there was little hint of the slowdown the group must already have been seeing," said Hargreaves Lansdown analyst Nick Hyett.
In May, Sophos posted an increase in billings revenue of USD768.6 million from USD632.1 million for its 2018 financial year.
Back in February, Sophos reported billings in the third quarter were up 19% at USD194.8 million from USD164.1 million for the same period the year before. For the nine-month period, billings rose to USD536.3 million, up 21% from USD443.9 million, driven by the products Sophos Central and Enduser Security.
"This isn't the first time that Sophos has failed to deliver. The business's third quarter update in February also saw billings behind expectations. It looks like a classic case of people thinking all companies serving hot sectors are guaranteed to see sustained growth at high levels," said AJ Bell's Russ Mould.
Over the past year, Sophos has benefited from global cyber attacks such as WannaCry and Petya which led to an increased demand for its services.
WannaCry infected thousands of computers worldwide in May last year, shut down computers and demanded a ransom payment in crypto-currency Bitcoin in order to access information. Many high profile firms suffered at the hands of the attack, including advertising agency WPP and Russian state oil firm Rosneft.
Petya belongs to a family of encrypting ransomware, and hit consumer goods giant Reckitt Benckiser last summer.
On a positive note, Sophos said its long-term outlook remains unchanged and expect a return to mid-teens constant currency billings growth in the second half of the year as the prior-year comparators normalise.
"In the long run we still think Sophos has an attractive position in a growing market, but management now have some serious work to do rebuilding credibility," Hyett added.
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