UK cybersecurity firm Darktrace has announced plans to buy back up to 35 million shares worth £75 million.
The announcement came after its shares fell more than 10% on Tuesday as short sellers questioned the company’s financial fundamentals.
On news of the planned takeover, which would be completed by the end of October, Darktrace shares rose slightly, but are still down 16% this week so far.
Last month, shares of the Cambridge-based cybersecurity firm plunged after announcing a cut in expected revenue for this year. The company’s value declined by 38% in 2022, in line with other major cybersecurity companies such as CrowdStrike.
Darktrace sells its AI-enhanced security solutions to large enterprises. It is known as a market leader in its field, but its solutions come at a high price.
This week, investment firm Quintessential Capital Management (QCM) and hedge fund Marshall Wace questioned the viability of Darktrace
“After careful analysis, we are deeply skeptical of the validity of Darktrace’s financials and are concerned that sales, margins and growth rates are overstated and close to a sharp correction,” said QCM, based in London. New York, in a report. [pdf].
“We would like to give our strongest possible warning to investors and believe that Darktrace’s equity [is] overvalued and subject to a major correction, or worse.
QCM said the company’s aggressive business approach means customers would be less likely to renew after three years, which would reduce Darktrace’s appeal as a long-term investment.
It was reminiscent of the company’s origins in Autonomy, whose former CEO Mike Lynch is fighting extradition to the United States for fraud, and who was until recently a major player in Darktrace.
“Given its close ties to Autonomy, it would be reasonable to wonder whether some people within DT’s management team might have been tempted to replicate its problematic sales practices, perhaps with added sophistication,” indicates the report.
QCM has now taken a 0.86% short position on Darktrace, effectively betting that its stock will fall. London-based Marshal Wace took a short position of 0.9%.
Darktrace pushed back against QCM’s allegations, saying in a statement on Tuesday: “As a UK-listed company, our management team and board take our fiduciary responsibilities very seriously and have complete confidence in our accounting practices and the integrity of our independently audited financial statements.
“We have implemented rigorous controls across our business to ensure that we fully comply with IFRS accounting standards. We’re proud of the business we’ve built, which today helps protect more than 8,100 customers worldwide from cyber disruption.