Insights

Why IronNet Stock Was Down on Wednesday

What happened

Shares of IronNet (NYSE: IRNT) were down 14.9% as of 1:02 p.m. ET on Wednesday after the company delivered its latest earnings results. For the fiscal first quarter of 2023, which ended April 30, IronNet reported that annual recurring revenue increased 17.5% year over year, while revenue increased only slightly to $6.7 million compared to $6.4 million in the year-ago quarter. 

Year to date, the stock has fallen 48% compared to the Nasdaq Composite‘s loss of 29%.   

So what

Top cybersecurity stocks have reported high growth rates lately, as demand from enterprise continues to heat up. IronNet co-CEO Keith Alexander believes his company is perfectly positioned for the future of this burgeoning market.  

“In the past several months, President Biden and his cyber leaders have urged the market to embrace the concept of Collective Defense — that ‘you have to beat all of us to beat one of us,'” Alexander said in a press release. “We firmly believe this is the future of cybersecurity.”

However, as noted by the market’s reaction, the company didn’t report a great quarter. Gross margin dropped to 62.7% from 69.6%. About 3 percentage points of the decline was due to certain inventory charges to support expected deployments later in the year, so it shouldn’t be too concerning. But as a result of the weak margin performance, the company’s reported net loss widened to $33.2 million from $15.5 million a year ago.

On a positive note, cloud subscription revenue reached 81% of product revenue from 65% in the year-ago quarter. Another high point was the customer count doubled to 91 and the company expanded its average contract length from 2.8 years to 3.2. 

Now what

Management reiterated its previous outlook for the full year. Revenue should increase by 25% year over year, with annual recurring revenue growing 50%.

This small-cap stock might look oversold at these lows, but investors should shop around the industry, because other cybersecurity leaders are growing much faster and might offer better returns.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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