Varonis Systems Inc. (VRNS) experienced a significant 7.11% pre-market plunge on Wednesday, as concerns over the company's ongoing transition to a software-as-a-service (SaaS) model weighed on its growth prospects.
The data security software provider reported strong fourth-quarter results, driven by robust new customer momentum fueled by the simplicity of its SaaS platform, MDDR offering, and increased demand from AI/Copilot adoption. However, the conversion process for existing self-hosted customers to SaaS contracts emerged as a significant headwind.
Varonis acknowledged that converting its existing customer base to SaaS contracts is a time and resource-intensive process, requiring significant legal and procurement work, as well as security checklist requirements. As a result, the company's sales team has been focused primarily on these conversions, putting the upsell and cross-sell motion on hold temporarily.
While Varonis reported healthy uplift and pricing upon conversion, analysts expressed concerns that the conversion headwinds could impact the company's ability to sustain its mid-teens growth rate in the near term until the upsell motion regains momentum post-transition.
The company stated that it expects sales productivity and the ability to drive growth from its base to accelerate once the transition is complete and reps can shift their focus back to SaaS upsell and cross-sell opportunities. Varonis plans to complete its SaaS transition by the end of 2025, a year earlier than previously anticipated, to unlock these benefits sooner.
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