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American Tech Report

CyberArk Software Ltd.

May 18, 2021

Investment Type
Mid - Cap
Risk Level
Rec. Price ($)


Company Overview: CyberArk Software Ltd. (NASDAQ: CYBR) was founded in 1999. The company and its subsidiaries are involved in providing information technology security solutions and have more than 6,770 global customers, including more than 50% of the Fortune 500 and over 35% of the Global 2000 companies. The company provides its products to financial services, energy and utilities, manufacturing, healthcare, retail, telecommunications, and technology industries, along with government agencies.

CYBR Details

CYBR Rides on Robust Operations & Financial Performance: CyberArk Software Ltd. (NASDAQ: CYBR) is involved in providing services, which safeguard organizational confidential accounts from cyber-attacks and cyber-thefts. The company has three reportable segments, namely (1) Subscription, (2) Perpetual License, and (3) Maintenance and Professional Services Revenues. The major growth drivers of the company revolve around robust demand across Privileged Access Management (PAM). Further, growth in existing customers, steady increase in new business across various industries and new business pipeline are also encouraging.

The company started 2021 with an encouraging note and reported robust first-quarter performance. The company remains on track to actively transition its business to a recurring revenue model starting from 1QFY21, owing to record level for its SaaS and subscription bookings. The company witnessed more than 40% growth in its Annual Recurring Revenue (ARR), and more than 250% growth in ARR related to SaaS and on-premises subscription contracts in 1QFY21.  The company exceeded its high-end revenues guidance with a favourable mix of subscription bookings (51% in 1QFY21). This was encouraged by a strong demand environment, mostly for CYBR’s SaaS solutions, and robust implementation of its strategies.

The company has reported ~$113 million revenues in 1QFY21, up from $96 million reported in 1QFY19. The company remains confident to deliver long-term growth, to enhance shareholder’s value and to increase profitability, given its identity security plan and comprehensive subscription transformation program.

Revenues Trend (Source: Company Reports)

The company remains optimistic regarding its robust demand across PAM, which includes on-premises and cloud, Endpoint Privilege Manager and Application Access Manager. Furthermore, increase in existing customers, a steady increase in new business and signing of new logos across all industries, along with a robust business pipeline remain encouraging.

1QFY21 Key Financial Highlights: During the quarter, the company reported non-GAAP earnings of 9 cents per share. Revenues for the quarter came in at 112.8 million, depicting an increase of 5.6% from the prior corresponding period. Notably, 68% of 1QFY21 revenues were recurring in nature, which stood at $76 million, up 41% on pcp. As of 31 March 2021, Annual Recurring Revenues came in at $288 million, up ~41% on a year over year basis. Markedly, the company remains on track to transition its subscription base model, with a fast-growing base of recurring revenues. Non-GAAP gross profit came in at $95.6 million, up 3.3% from the prior corresponding period. Operating expenses during the quarter came in at $90.1 million, up 27% year over year, owing to higher R&D expenses, S&M expenses, growth in G&A expenses, as well as $2.1 million further expenses associated to the integration of Idaptive operations.

On a segmental basis, Subscription revenues stood at $25 million, skyrocketing 180% year over year and accounted for ~22% of total revenues in 1QFY21. Perpetual license revenues during the quarter accounted for 24% of total revenues and stood at $27 million (plunged 29% year over year), owing to the company’s tactical move of changing sales motion toward a recurring subscription business model.

Revenues from Maintenance and Professional Services stood at ~$61 million, depicting a rise of 13% on pcp.

1QFY21 Key Highlights (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders together form around 32.24% of the total shareholdings, while the top 4 constitutes the maximum holding. Wasatch Global Investors Inc and Templeton Investment Counsel, L.L.C. are holding a maximum stake in the company at 8.58% and 4.06%, respectively, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

Key Metrics & Liquidity Position: The company exited the quarter with cash, cash equivalents, marketable securities, and short-term deposits of $978 million, up from the previous quarter figure of $953 million. The company generated $33.97 million of operating cash flow during the quarter. It had $31.31 million of free cash in 1QFY21. Total deferred revenues at the end of 1QFY21 stood at $176 million, an increase of 23% year over year. The available cash can be utilized for investment in growth initiatives, enhancing its security products, and shareholders’ value.

In 1QFY21, the company’s gross margin stood at 81.4%, higher than the industry median of 78.5%, indicating higher profitability. The current ratio of the company stood at 4.34x during 1QFY21, higher than the industry median of 1.86x, depicting a decent liquidity position. In FY20, debt to equity ratio of the company was 0.71x as compared to the 0.78x in FY19.

Liquidity and Leverage Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group  

Key Risks: During 1QFY21, SaaS and subscription bookings generated headwinds of ~$11 million. Stiff competition, adverse currency translations and a volatile macroeconomic environment pose threats to the company’s financial position. CYBR’s continued investments in boosting its cloud infrastructure deployments, and sales and marketing capabilities have inflated expenditure. This, in turn, may weigh on margin expansion, going forward.

Outlook: For 2QFY21, the company expects total revenues to be in the range of $111-$119 million. For 2021, the company predicts revenues to be in the range of $484 million and $496 million. Non-GAAP earnings per share for FY21 is now expected to be in the ambit of 39-64 per cents. The major growth driver of the company revolves around robust demand across Privileged Access Management (PAM). The ongoing robust demand for CYBR’s products and services, given the need in the global security market, is likely to assist the company’s results, going forward. Furthermore, the ever-increasing traction of Endpoint Privilege Manager within customers of all ranges and across numerous industries remains a potential tailwind. The company also works with numerous global systems integration partners and quite a few numbers of leading regional security value-added resellers, which add to its long-term growth. Further, being a cash-rich company and with a strong balance sheet, the company ensures rewards to its shareholders from its deep cash balances.

Outlook (Source: Company Reports) 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went down by ~20.58%. The stock made a 52-week low and high of $92.61 and $169.7, respectively. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer average, considering its increase in top-line, robust demand across PAM, growth in existing customers, steady increase in new business and new business pipeline. For the purpose, we have taken peers like Palo Alto Networks Inc (NYSE: PANW), Check Point Software Technologies Ltd (NASDAQ: CHKP), to name a few.  Considering the company’s track record of robust liquidity position, decent 1QFY21 performance, increase in subscription-based license revenues, decent revenues outlook and valuation, we give a “Buy” recommendation on the stock at the closing price of $116.31, down by ~4.27% on 17 May 2021.  

CYBR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.


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