Alarum selloff
Yes, it happens, the slowdown in growth arrived with a bang with NetNut (we disregard the couple of 100K remaining of their consumer business) 'only' growing 70% according to the preliminary Q2 data.
This was always going to happen, but it happened a little more suddenly than we expected. We were somewhat amazed that NetNut growth in Q1 was 139% so one could argue things even out a bit, but that's not how the market took it.
We think the most likely explanation for the slowdown is that astronomically higy NRR of 166% in Q1 came down and here is why we surmise that happened. Management described how new customers first sample (with different providers) to assess performance, and then return for large orders when satisfied.
This is actually good as it shows competitive strength, customers are coming back for the real stuff, beating the competition and causing the sky-high NRR.
So most of that NRR is caused by new customers, but since NetNut is scaling, the ratio of new to existing customers is falling and hence we should expect a tapering off of NRR to more normal levels.
For 99% of the companies out there, 70% growth is still spectacular but in Alarum's case the market had priced in something higher and we're back to $30 in the blink of an eye.
We want to hear from management before we come to any more definite conclusions, on the present trajectory the $40M FY24 revenue with $2 EPS seems a bit of a stretch, although we think they will still come close.
The company is still attractive, operating in a high-growth market, with new products just launched and another one coming up, generating high 70s gross margins, they are profitable and generate quite a bit of cash, have no debt, and $21.7M in the bank (up from $15.1M the previous quarter). The shares are not expensive either.
Growth was always going to normalize, no company maintains triple-digit growth indefinitely, but before we consider adding or selling we want to hear from management as the preliminary data give too little for a firm grip.