January 18, 2019 / 10:11 AM / a month ago

Sophos shares tank as demand for cybersecurity tools wane

(Reuters) - Sophos Group Plc’s (SOPH.L) shares slumped 25 percent on Friday, after the cyber security company warned of slightly lower annual billings as hardware upgrades and sales to new customers fell.

Sophos said third-quarter constant currency billings, which represents the value of products and services invoiced to customers, rose 2 percent. This compared with a 14 percent rise, a year earlier.

“There are a lot of problems in this announcement, not least the fact that management guidance once again has proven overly optimistic,” Nicholas Hyett, equity analyst at Hargreaves Lansdown, said.

The company, whose customers include Under Armour Inc (UAA.N), Ford Motor Co (F.N) and Toshiba Corp (6502.T), expects third quarter’s “subdued performance” to continue in the next quarter as well.

The company, which makes antivirus and encryption products, said billings had grown 18 percent, at constant currency, to $769 million for the full year ending March 31, 2018.

“There are few issues affecting our results and outlook,” Chief Executive Officer Kris Hagerman told analysts on a call.

Hagerman said Sophos saw weakness in hardware billings, in part because of an ongoing transition from its cyber platform to the unified threat management (UTM) platform, which consolidates a range of security features in a single appliance.

“Some of our existing UTM customers are choosing to maintain their current UTM appliances for longer period than we anticipated.”

Several cybersecurity firms were in demand in the past few years on the back of high-profile ransomware attacks such as the WannaCry virus and BadRabbit that disrupted operations at factories, hospitals and shops. However, Sophos lost about a third of its value last year in a highly competitive market.

GRAPHIC: Sophos underperforms index, rivals - tmsnrt.rs/2T3wcms

“Little in the way of explanation raises serious questions about management’s grip on the business and has perhaps irreparably damaged the group’s credibility with investors,” Hyett said.

Sophos, founded in 1985 in Oxford, had cut its billings forecast in November as it struggled to match the “dramatic acceleration in demand” it had seen in the previous year for cybersecurity products.

“This is the third consecutive FY guidance downgrade and it now looks like new product launches will not be able to offset the strong performance in FY’18,” Liberum analyst Alexandre Schmidt said.

Sophos shares were down 21.8 percent to 294.4 pence at 0917 GMT, the top loser on London's midcap index .FTMC.

Sophos’ U.S.-based peers Symantec Corp (SYMC.O) and FireEye Inc (FEYE.O) reported robust earnings in the last quarter.

Reporting by Karina Dsouza and Arathy S Nair in Bengaluru; Editing by Bernard Orr and Shounak Dasgupta

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