Revenue Downgrade: Here's What Analysts Forecast For Varonis Systems, Inc. (NASDAQ:VRNS)

Today is shaping up negative for Varonis Systems, Inc. (NASDAQ:VRNS) shareholders, with the analysts delivering a substantial negative revision to next year's forecasts. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.

Following the downgrade, the latest consensus from Varonis Systems' 18 analysts is for revenues of US$527m in 2023, which would reflect a notable 15% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 37% to US$0.79. However, before this estimates update, the consensus had been expecting revenues of US$591m and US$0.77 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

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The consensus price target fell 31% to US$28.76, implicitly signalling that lower earnings per share are a leading indicator for Varonis Systems' valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Varonis Systems analyst has a price target of US$63.00 per share, while the most pessimistic values it at US$20.00. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We can infer from the latest estimates that forecasts expect a continuation of Varonis Systems'historical trends, as the 12% annualised revenue growth to the end of 2023 is roughly in line with the 14% annual revenue growth over the past five years. Compare this with the broader industry, which analyst estimates (in aggregate) suggest will see revenues grow 13% annually. It's clear that while Varonis Systems' revenue growth is expected to continue on its current trajectory, it's only expected to grow in line with the industry itself.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at Varonis Systems. There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Varonis Systems after today.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Varonis Systems analysts - going out to 2024, and you can see them free on our platform here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.