Sophos shares slide 18 per cent despite 'strong' revenue growth

Oxford-based security vendor fails to impress investors as revenue rises but operating profit swings to loss

Cybersecurity vendor Sophos saw its share price slide by 18 per cent this morning, despite posting what its CEO described as "strong growth".

For the three months ending 31 December, Sophos saw its revenue jump 23.4 per cent year on year to $166.4m (£119.7m), but operating profit swung from $1.7m to a $2.8m loss.

Sophos CEO Kris Hagerman said: "The strong demand for our industry-leading cybersecurity solutions continued in Q3.

"Customer reaction to XG Firewall v17 has been very positive, and we are delighted to have recently launched a major new release of Intercept X, incorporating for the first time our neural network-based deep-learning technology into our leading end-point product.

"Consequently, as our business continues to post strong growth, the board is confident both in the outlook for the full year and the longer-term prospects of the group."

The positive outlook from Hagerman was not enough to prevent the share price slump, with Hargreaves Lansdown claiming that the drop could be a result of weaker-than-expected billings, as well as weaker cashflows.

Sophos' subscription billings were up 20 per cent in Q3, while cashflow from operations declined 2.2 per cent year on year to $17.5m.

"Unfortunately, despite remaining on track to hit expectations for the full year, the third quarter didn't back up a strong first half," Hargreaves Lansdown said.

"Billings were up, but not as much as had been expected, and the group's cashflow also disappointed the market. The shares duly dropped sharply.

"However, those weaker cashflows were due in part to investment being pulled forward from Q4 to Q3. With this in mind, we're willing to give it the benefit of the doubt for now but will be looking for a notable uptick in the final quarter of the year."

TechMarketView research director Angela Eager said Sophos has likely taken a short-term financial hit to continue investing in its technology.

Last week Sophos told CRN that it had integrated Invincea - the machine-learning vendor it acquired last year - into its next-gen protection portfolio.

Eager said: "With the threat landscape forever expanding and changing, the challenge for security providers is investing enough to counter emerging threats and that is an expensive business.

"However, investment is worth the impact on short-term profitability and Sophos is continuing to invest and innovate as demonstrated by developments such as the latest release of Intercept X which incorporates neural network-based deep-learning technology for the first time."