Wedbush Upgrades Varonis Systems On Shift To Subscription Model

Varonis Systems Inc VRNS caught the Street off guard with its Monday announcement of a shift from its perpetual license model to a heavy subscription model.

Although the announcement came as a surprise, it's the right decision for the long term, according to Wedbush.

The Analyst

Daniel Ives upgraded Varonis Systems from Neutral to Outperform and raised the price target from $55 to $85.

The Thesis

With its transition to a subscription model, Varonis Systems is on the verge of beginning its next growth phase, Ives said in the Tuesday upgrade note. (See his track record here.) 

The analyst recommends buying the stock at current levels and said a re-rating is likely over the next 12-18 months, with improved execution and visibility.

Although the transition to a subscription model will have its problems, the data security opportunity for Varonis Systems represents a $10-billion TAM, Ives said. Given its strong competitive position and robust platform, the company could deliver significant growth over the coming years with the right pricing strategy, he said. 

“As such, we believe Varonis’ platform offers a broad range of robust features and unique functionalities that differentiate it from traditional data security offerings, which we view very favorably as its market faces secular tailwinds over the next few years." 

Price Action

Varonis Systems shares were trading higher by 4.8 percent to $70.03 at the time of publication Tuesday. 

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