Thursday 16 May 2019 8:47 am

Sophos shares jump as it grows revenue despite ‘challenging’ year

Shares in cybersecurity firm Sophos soared after it posted double-digit revenue growth for the full year, despite reporting “challenging” trading over the period.

Read more: Sophos shares tank on performance warning

The figures

Revenue rose 11.2 per cent to $710.6m (£554m) in the year to the end of March.

Pre-tax profit hit $53.6m, up from a $41m loss the previous year.

Net cash flow declined 3.2 per cent to $142.9m.

Why it’s interesting

The robust full-year revenue growth will come as a pleasant surprise to Sophos investors, who have been rattled by warnings from management. Earlier this year the firm warned of “subdued performance” in the third quarter, sparking a sharp sell-off.

The Abingdon-headquartered company today confirmed billings had been flat year-on-year, largely due to a reduction in the number of large transactions compared to the year before.

But Sophos reported strong growth in subscription revenue, which grew 16 per cent over the period, while it boosted its managed service provider monthly billings.

The modest outperformance comes despite a boom elsewhere in the cybersecurity industry, as rivals cash in on growing concerns about cyber breaches.

The firm has also faced criticism for missing its targets due to overly-optimistic forecasts.

But the better-than-expected figures appear to have bolstered investor confidence, as shares in Sophos Group soared more than 16 per cent in early trading.

The firm said it expects further revenue growth in the year ahead, driven by growth in its subscription business.

“Having been caught out repeatedly last year with over-optimistic forecasts, a better than guided performance in the final quarter goes some way to patching up the group’s damaged credibility,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

“Full rehabilitation is some way off, but this is the first step on the road.”

Analysts at Shore Capital described Sophos as the “worst performing stock in the cyber sector” over the last year. But they added the valuation should improve in the coming year if billings grow in line with expectations.

Read more: Cybersecurity firm Avast reports boosted revenue growth

What Sophos said

“Despite the challenges we faced in full year 2019, we are pleased with the strategic progress we made during the year,” said chief executive Kris Hagerman.

“The demand environment for cybersecurity solutions continues to be robust, and we are confident that we are well positioned competitively, especially as more organisations move to adopt next-generation cybersecurity offerings.”