Darktrace $DARK.L

Thought I would create a thread for this newly listed company.

Ignoring the share price movements since IPO for a moment, it is an interesting business in a growing sector of cybersecurity and using AI to achieve that. Subscription accounts for about 99.5% of revenue which I like and also it is partnering with microsoft which is a good sign:

Also they function in environments like the cloud so that is as we know a massive growing sector too.

Now onto price, it seems to be at about 28 P/S based on $281 rev and about $8bn market cap at current prices. Rev growing 40+% last couple years, forecasting mid 30s% next year. It has run up since IPO, and I imagine (and hope) it has significant pullbacks too.

One thing that would be interesting is whilst it is still under the 15-20bn valaution if someone such s Microsoft would want to buy it. I need to research it more and look forward to following earnings reports etc.

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Really good post and they’re certainly an interesting company.

I nearly took a position just out of sentiment as they are also based in Cambridge I believe.

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Yep I have been hunting for something in this sector, and also a UK growth name to add to portfolio, this is currently ticking these boxes so I opened a starter position of handful of shares at about 850p but ideally hoping it crashes to 400-500p or something to add some more, but if not I will keep averaging in a couple shares here and there on the way up. This will be a volatile one for sure but I am actively looking to take on some risk right now.

I already invested in these guys soon after IPO and made 100%. Sold out at 100% but it’s gone even higher. Still not bad profit.

I’ve been in Crowdstrike longer and feel their prospects are better although darktrace has good prospects too but the value trade has already played out

About the partnerships, it’s funny to see the rivalry playing out, Google partners with Crowdstrike and Microsoft with Darktrace.

There is a nagging feeling in my mind because I actually have quite a big Microsoft position and them partnering with darktrace is more relevant than google with Crowdstrike and a better vote of confidence in my mind.

I never intended to hold to though, just planned the swing trade and that was it.

Also about your point of adding more risk in the current climate I’ve been de-risking. Maybe that’s preventing me from properly going long Darktrace again

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Yes I hold Microsoft but not Google, so trust in Microsoft judgment a lot, I would be fascinating to know hw Microsoft assess who to acquire and if Darktrace are on their list as currently they could quite easily, but no idea the value add for Microsoft compared with just partnering. I think also could be some shifting with FTSE 100 with changes to some of the current constituents listings and businesses so when it makes it to FTSE 100 may become more on international investors radars too, it is currently largest cap in FTSE 250 I believe.

Yes lots of people, quite rightly are de-risking as many invested in growth names, I probably have relatively less of my portfolio in those 10-50bn growth names many have liked last couple years. Also I feel holdings such as BP (my largest) are relatively de-risked compared to when I opened position and now will provide stability so happy to then go risk on with some smaller companies.

Have you considered comparing the general size of market of funds that represent the FTSE 100 and the FTSE 250?

Could give an indication to potential uplift, were it to be upgraded if money in the FTSE100 was 2x that in FTSE250 funds, and then take a view on % weighting to work out how much of a short term uplift their could be with FTSE100 trackers having to buy it?

EDIT:
JustETF has 16.1bn AUM in 11 FTSE100 ETFs, and 5.1bn in 6 FTSE250 ETFs.

Dark is 6.8bn out of the 456bn AUM of the FTSE250 so 76m of the ETFs on JustETF list.
Dark still at 6.8bn out of the 1934bn AUM of the FTSE100, so 57m of the ETFs on the JustETF list.

Doesn’t look like the switch from FTSE250 to FTSE100 would have much of an uplift after all due to the change of index funds holding it.

Yeah I have nearly half my portfolio in just 4 positions despite having 40 overall. On the 10-50 billion point, Crowdstrike and palantir fit, which I own. Smallest cap company is Advanced Medical Solutions on the LSE AIM just 500 million £ cap! So if you wanna go small cap can’t beat that! Amazing.

Also about the Microsoft and google point, I don’t want it to sound like I’m discrediting google, obviously great company but I’m rightfully biased towards Microsoft.

Looking at the growth metrics of Darktrace though I recall they were just in the 40-50% range hovering whilst a lot of American names are growing 50+ even a steady 65%+ so why isn’t Darktrace capitalising on the current threat environment?

Just food for thought.
Also did not know at all Darktrace was in 250 seems I totally missed that news, probably dropped after I sold.

Interesting breakdown, yes I meant in more of a ‘brand’ perspective in the investment world as many in the UK or Europe will be ignored by US or other investors, but i expect a jump for any company to FTSE 100 just puts it a bit more on peoples radars especially if it can keep growing well.

Yeah I think its growth isnt overwhelming, but still strong, and I could foresee with larger partners or growing client based the rev per user can be brought up as innovation of more products. I think also there is something to be said about being in a country like UK during this phase of growth, I know lots of revenue is US clients I mean more in terms of I expect the UK govt and other large essential organisations in the UK want and need some strong UK tech companies, to defend from attacks ike the pipeline attacks etc, and I dont think the likes of BAE are nimble enough to do it on their own I expect.

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I don’t think BAE specialises in the pure cyber threat field although I know all of the defence companies are working on electronic warfare and networking.

Especially Lockheed is going in super hard on the whole ‘connected battlefield’ with 5G and even 5G planned for space and companies like palantir are getting a piece of that pie too.

Something JADC something can’t recall but it’s a really big contract which now is a Raytheon Team pitted against a Palantir team.

I own both but would prefer if palantir won but I have to admit the Raytheon team is already put together and seems quite impressive while palantir has just gotten their first partner.

With the amount of good cyber security stocks out there you might be better off in an etf that tracks it.

Yeah I meant more that BAE and the like cyber sections mange things like tracking terrorists or that type of things which use advanced systems, this systems need to be protected so I could see something like Darktrace being a UK firm being a frontrunner for protecting these large systems and produce somewhat of a revenue floor/stable revenue in years to come. It is interesting if you look at the RPO section about the revenue of agreed contracts over next months/years:

Within 12 months 322,013
Between 1 - 2 years 231,209
Between 2 - 3 years 143,085
Between 3 - 4 years 56,358
Over 4 years 5,551

So with 281m as last years revenue next year at 322m thats already about 15% growth if they didnt make any new sales. I think this figure will be interesting to see going forward to see how contract lengths and revenue pipeline shakes out.
Last year they have 225m next 12 moths which led in the year to 281 total rev, a 25% uplift from RPO, so that would suggest although they are saying a 35% ish increase in revenue, in actual fact from 322 RPO uplift of 25% would be 400m ish which on 281m would be over 40% rev growth.

Nothing is that simple of course but just good to look at this and then next earnings (do they do half year or just full year? cant see listed) to see how it plays out.

Shares up 7% today on the news:

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