Darktrace shares plummeted on Monday after analysts said the cybersecurity company is only worth half of its market value, just days before it joins the FTSE 100.
Shares fell as much as 27pc, before closing 21pc lower, following claims by Peel Hunt that Darktrace’s valuation had become detached from reality and that the business’s marketing is not matched by its technology.
The slump wiped more than £1bn off Darktrace’s market cap and put a dampener on one of London’s most successful tech floats this year.
Darktrace shares had almost quadrupled since its £1.7bn listing in May and the company is due to enter the FTSE 100 on Wednesday, replacing Morrisons as a result of the grocer’s acquisition.
Poppy Gustafsson, Darktrace’s chief executive, serves on a council of business leaders advising Boris Johnson and last week took part in an investment summit organised by Downing Street aimed at selling Britain to businesses around the world, where she was pictured meeting the Queen.
Peel Hunt’s analysts said that some customers had described the technology as “snake oil” and felt it had underinvested in research and development.
The broker said: “Darktrace’s strong marketing engine has been a cause of some controversy, as many [customers] felt there was a gap between the promise and reality.
“While we believe strong growth rates will continue, we also see a disconnect between the valuation and the ultimate revenue opportunity.”
Cambridge-based Darktrace was founded in 2013 and describes itself as an immune system for corporate computer networks, using artificial intelligence to root out intruders before they can do damage.
Queen Elizabeth greets Microsoft co-founder turned philanthropist Bill Gates (2nd, R) and Darktrace co-founder and chief exec Poppy Gustafsson (R)
Credit: Arthur Edwards-Pool/Getty Images
It has also expanded into areas such as email security and the cloud in an effort to boost growth.
However, Peel Hunt said that the size of the potential market and increasing competition means that investors have become over-optimistic about its growth prospects.
The broker added that Darktrace’s success so far had been driven more by its marketing and sales operations than its products, with some customers believing there to be a “gap between the marketing and the reality”.
It put a 473p price target on Darktrace shares, half of its 950p share price last week. The note sent the shares falling 195p to 750p. That is still significantly above the 473p at which they were valued by Peel Hunt.
Darktrace took the unusual step of responding to an analyst note, suggesting the Peel Hunt had underplayed its potential by focusing only on the business’s network security division.
A spokesman said: “Darktrace’s self-learning AI protects organisations against cyber-attacks across the full breadth of digital environments, of which network is one of many.
“Darktrace technology therefore cannot be described as network only. Customer satisfaction across our 5,900 customers remains industry-leading.”
The company has been among a group of high-profile technology listings this year alongside Deliveroo, Trustpilot and Wise. It qualified to replace Morrisons in the FTSE 100 last week as the largest member of the FTSE 250.
The business’s latest quarterly sales hit $93.1m (£78.6m), up 50.8pc on a year earlier, and bosses said it expects growth to continue. It made a $150m loss last year on revenues of $281.3m.
In April, ahead of Darktrace’s flotation, Peel Hunt had said the company was worth between £1.5bn and £1.9bn.
Darktrace was funded in its early days by Mike Lynch, the founder of former FTSE 100 software company Autonomy, and many of its top executives formerly worked at the company.
Mr Lynch has been charged with fraud in the US over Autonomy’s 2011 sale to Hewlett Packard, which he denies, and Darktrace has warned that the allegations could present a risk to the company.