On Friday, BofA Securities maintained its Underperform rating on SecureWorks (NASDAQ:SCWX) with a steady price target of $4.90. The firm's analysis followed SecureWorks' latest revenue report, which surpassed the market's expectation by $1 million, posting $86 million against the anticipated $85 million. This report sent the stock price soaring by 17%, yet the company's year-over-year growth continues to decline by 9%.
According to the management of SecureWorks, the decline in revenue can partly be attributed to the phasing out of its legacy business, which impacts the revenue figures by 15 percentage points. Despite the current headwinds, the company's management has decided to stick to its previous forecast of a 10% revenue decline for the fiscal year 2025. This expected downturn is largely due to the shift towards subscription-based services, which is anticipated to affect business into the second half of the year.
BofA Securities expressed concerns that SecureWorks may be facing deeper issues beyond the transition to a subscription model. The firm suggested that for SecureWorks to align with the growth rates of other companies in the Extended Detection and Response (XDR) market, it would need to tackle these underlying challenges. The expectation that the company will continue to underperform is based on these factors.
In other recent news, SecureWorks Corp. has reported a strong start to fiscal 2025, with first-quarter earnings showcasing total revenue of $86 million, strongly influenced by its product-led SaaS model. The company's flagship product, Taegis, has been a significant driver of growth, with a reported 10% year-over-year increase in subscription revenue, amounting to $69 million. The company's annual recurring revenue (ARR) stood at a solid $287 million.
SecureWorks ended the quarter with 2,000 Taegis customers, with an average revenue per customer of $145,000. The company has projected its total ARR to exceed $300 million and expects to maintain a positive adjusted EBITDA throughout the fiscal year.
The company's second-quarter revenue is anticipated to be between $80 million and $82 million, with adjusted EBITDA of $1 million to $3 million. For the full fiscal year, SecureWorks has forecasted a total revenue ranging from $325 million to $335 million.
InvestingPro Insights
With SecureWorks (NASDAQ:SCWX) catching the attention of investors after its recent earnings report, real-time metrics and InvestingPro Tips provide a deeper dive into the company's financial health and prospects. SecureWorks boasts a market capitalization of $593.19 million, but its P/E ratio stands at a negative -5.46, indicating that the company is not currently profitable. The revenue for the last twelve months as of Q1 2025 is reported at $357.14 million, with a significant decline of 18.25% year-over-year. Despite this, the company's gross profit margin remains robust at 62.7%, showcasing its ability to maintain profitability on its core offerings.
InvestingPro Tips highlight that SecureWorks holds more cash than debt on its balance sheet, which could provide financial flexibility in uncertain times. Additionally, 2 analysts have revised their earnings upwards for the upcoming period, suggesting a potential shift in the company's financial trajectory. Notably, SecureWorks has experienced a strong return over the last week and month, with price total returns of 16.81% and 15.03% respectively. These metrics may indicate investor optimism in the short term, despite the concerns raised by Bofa Securities.
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