Integration Of Venafi And Zilla Security Will Strengthen AI-Driven Identity Solutions

Key Takeaways

• Strategic acquisitions and R&D in AI and machine identities bolster CyberArk's identity security offerings, enhancing revenue through cross-selling and market expansion.
  
• Focus on unified identity security platform and machine identity market positions CyberArk for significant growth and improved margins as customers consolidate identity solutions.
  
• Integration risks with acquisitions, increasing market competition, and evolving cybersecurity threats could impact CyberArk's financial performance and operational complexity.

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 and Zilla Security into CyberArk is expected to enhance its competitive position in identity security, allowing for revenue growth through cross-selling opportunities within its existing customer base and expanding its total addressable market.
  
• The acquisition of Zilla Security is aimed at addressing longstanding inefficiencies in identity governance administration (IGA), which is expected to reduce operational complexity and improve CyberArk's net margins by offering faster deployment and integration than traditional IGA solutions.
  
• The evolving machine identity market, coupled with CyberArk’s focus on AI-driven identity security through its machine identity capabilities and Secrets Management, is expected to drive significant revenue growth as organizations seek integrated solutions to manage increasingly complex identity security needs.
  
• CyberArk's unified identity security platform, which includes privileged access management and workforce security, is expected to drive higher average deal sizes, revenue growth, and improved net margins as customers increasingly consolidate their identity security solutions with trusted vendors.
  
• Ongoing investment in research and development, especially in areas like AI and machine identities, is set to provide CyberArk with innovative solutions to capture new market opportunities, boosting future earnings through product differentiation and improved customer trust.

CyberArk Software Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CyberArk Software's revenue will grow by 24.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -9.3% today to 6.9% in 3 years time.
• Analysts expect earnings to reach $131.3 million (and earnings per share of $2.43) by about April 2028, up from $-93.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $160.8 million in earnings, and the most bearish expecting $66.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 266.8x on those 2028 earnings, up from -175.3x today. This future PE is greater than the current PE for the US Software industry at 29.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.96%, as per the Simply Wall St company report.

CyberArk Software Future Earnings Per Share Growth

Risks

• The integration of Venafi and Zilla Security into CyberArk's operations presents execution risks which could impact the company's ability to achieve projected synergies and financial outcomes, potentially affecting revenue and net margins.
  
• Increasing competition in the identity security market and pressure to expand its platform rapidly could lead to increased operational complexity, adversely impacting earnings if not managed properly.
  
• The cybersecurity landscape is highly dynamic, with evolving threats and the need for quick adaptation. Delays or missteps in product development or market response due to these complexities could negatively affect customer adoption and revenues.
  
• The dependency on SaaS applications and cloud environments involves significant risk related to security and regulatory changes, which could impact operational costs and net margins if not effectively addressed.
  
• The company faces potential macroeconomic uncertainties, such as fluctuating currency rates which impacted ARR by $2 million as mentioned, affecting overall earnings and financial stability.

Valuation

• The analysts have a consensus price target of $438.954 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 $500.0, and the most bearish reporting a price target of just $352.11.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $131.3 million, and it would be trading on a PE ratio of 266.8x, assuming you use a discount rate of 10.0%.
• Given the current share price of $331.21, the analyst price target of $438.95 is 24.5% higher.
• 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.