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IPO Watch

Darktrace IPO races out of the blocks

Darktrace IPO: The Darktrace logo adorns a Formula One racing car

In a welcome boost for the London market after the Deliveroo flop, the UK cybersecurity company Darktrace's IPO has launched well above its initial price of 250p per share, jumping sharply to 350p in opening trade.

The company, which was founded in 2013, uses artificial intelligence (AI) to identify cyber threats within clients' computer systems.

Darktrace IPO see sharp boost in early trading

The Darktrace IPO has offered bankers a chance for redemption with respect to pricing the listing correctly, as well as offering management the opportunity to set expectations accordingly. There were early indications that the initial valuation might be higher than this, at around £3bn, however it appears that a little bit of caution has broken out among London bankers after the shambles of the Deliveroo valuation.

Given the sharp boost in initial trading, there will inevitably be some criticism that the Darktrace IPO listing was priced too low, however given what happened with Deliveroo, maybe expectations were adjusted lower by a little too much.

Of course, there are always risks when pricing an IPO and Darktrace does have its own set of problems with respect to its links with former Autonomy CEO Mike Lynch, which in an ideal world it wouldn’t have to contend with. Lynch, who is on trial for fraud as part of his involvement in the Hewlett-Packard Autonomy deal and is fighting extradition charges to the US, is a founder member of Darktrace through his Invoke Capital fund.

As part of the recent filing, Darktrace warned that there was a small chance that it could also be charged with offences as part of any fallout, though management felt this was a remote prospect. Nonetheless, it’s not an ideal backdrop for drumming up interest in what could be an exciting investment proposition, however for now Darktrace IPO investors appear to be putting those concerns to one side.

Revenue jumps 45%

The company has over 4,700 clients and has seen a 45% increase in revenue year to date, with the US its biggest market, though the company’s HQ is in Cambridge. Formula One fans will know of Darktrace due to its sponsorship of the McLaren team, with its name having pride of place on the rear wing of the MCL35M.

Unlike Deliveroo, there are few concerns about the sustainability of its business model, however the company has as yet been unable to turn a profit. That in itself shouldn’t be a problem, as successful businesses are rarely profitable straight out of the traps, however there is significant growth potential in the cybersecurity market.

According to the 12 April filing, from fiscal year 2018 to fiscal year 2020, the company said that group revenue has grown from $79.4m to $199.1m, with adjusted earnings improving from a loss of $27m to a $9m profit. Client growth over the same period has seen a rise from 1,659 to 3,858.

Darktrace shares are listed on the London Stock Exchange and will be available for inclusion in the UK's FTSE indices.