Integration Of Venafi Will Open Access To $10 Billion Machine Identity Security Market

Key Takeaways

• Transitioning to SaaS and platform models is boosting revenue stability and predictability, positively affecting growth prospects.
  
• Strategic partnerships and Venafi integration are expanding market reach and strengthening leadership, enhancing revenue opportunities.
  
• Integration of Venafi and CFO change pose execution and transitional risks, affecting revenue, investor confidence, and recurring profitability amid competitive identity security challenges.

Catalysts

Develops, markets, and sells software-based identity security solutions and services in the United States, Europe, the Middle East, Africa, and internationally.

• The integration of Venafi is expected to create top-line synergies, expand CyberArk’s market reach, and bolster its leadership in machine identity security, potentially driving revenue growth.
  
• The transition to SaaS and platform selling is increasing the proportion of recurring revenue, which is likely to improve revenue stability and predictability, impacting overall revenue growth positively.
  
• The emphasis on expanding Privileged Access Management (PAM) capabilities and securing developer identities is aligning CyberArk with current security demands, potentially enhancing customer acquisition and, consequently, revenue.
  
• Strategic partnerships, such as with Wiz for cloud security, are expected to enhance CyberArk’s cross-selling opportunities and market penetration, potentially impacting revenue growth positively.
  
• With Venafi's acquisition, CyberArk targets a $10 billion addressable market in machine identity security, which could significantly influence future revenue growth.

CyberArk Software Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CyberArk Software's revenue will grow by 25.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.4% today to 11.0% in 3 years time.
• Analysts expect earnings to reach $197.5 million (and earnings per share of $3.97) by about February 2028, up from $12.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $225 million in earnings, and the most bearish expecting $-24.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 137.1x on those 2028 earnings, down from 1497.5x today. This future PE is greater than the current PE for the US Software industry at 42.9x.
• Analysts expect the number of shares outstanding to grow by 2.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.78%, as per the Simply Wall St company report.

CyberArk Software Future Earnings Per Share Growth

Risks

• The integration of Venafi into CyberArk’s operations poses execution risks, which could impact projected results and potentially affect revenue and earnings.
  
• The change in CFO and potential transitional challenges may introduce uncertainty, affecting investor confidence and financial outcomes like net margins.
  
• The dependency on customers’ willingness to unify their identity management solutions with CyberArk, as well as their transition to SaaS, carries execution risks that could impact ARR growth and revenue.
  
• The competitive landscape in machine identity security and the need for heightened customer awareness may slow market penetration, potentially impacting revenue growth and earnings.
  
• A potential decline in maintenance ARR due to the largest customer renewals in Q4 could affect recurring revenue streams and overall profitability.

Valuation

• The analysts have a consensus price target of $386.206 for CyberArk Software based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $450.0, and the most bearish reporting a price target of just $303.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $197.5 million, and it would be trading on a PE ratio of 137.1x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of $381.81, the analyst price target of $386.21 is 1.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.