In the rush to shore up defences, companies selling armour should be making a killing. That’s true in the round – a basket of US cyber stocks is up 60% year-to-date – but one of Britain’s best-known cyber companies is failing to reap the rewards.Darktrace, a former tech darling, has had a rough few years. Backed by Mike Lynch, it became tainted by its links to the investor, who fought a long court battle over Hewlett Packard’s purchase of the company he co-founded, Autonomy. (Lynch died weeks after being acquitted when his yacht sank off the coast of Sicily.) Darktrace was floated in London in 2021 and tripled its value under Poppy Gustafsson before a steep decline and some unwanted attention from short sellers.No wonder the latest accounts don’t make for happy reading. Companies House filings reviewed by The Observer show that growth in recurring revenue sunk to 5% in the year to 30 June, down from 13.2% a year earlier. Customer numbers fell 2.3% and future contracted revenue fell 6.7% to $1.3bn (£1bn). Revenue share from the US – which Thoma Bravo wants to account for half of sales – barely budged from 36% a year ago.For context, the Gartner consultancy forecasts that global cybersecurity spending will increase 12.2% in 2026, rising to 15.6% in “network detection and response” – Darktrace’s core market. S&P Capital IQ estimates that annual sales at sector giants Crowdstrike and Palo Alto will grow by a fifth for the next two years.There’s an argument that an acceleration in threats (and liability) due to AI is forcing corporates to look to those biggest players for comprehensive cover, while specialist smaller firms such as Darktrace are squeezed.“The problem Darktrace has is its very specific products,” says Michael Hewson at MCH Market Insights. “At a time when costs are a bigger consideration, companies are looking to get more bang for [their] buck… by using companies like Microsoft, Cisco and CrowdStrike, who offer a wider range of protection.”Darktrace may also argue that customer numbers fell because it is hunting bigger game. Its new boss, Ed Jennings, has said the company needs to “concentrate on the core customer” and “close regional gaps”.Critics will question whether private equity ownership has been good for the firm. A year after the takeover, Thoma Bravo had the company borrow $750m while paying out $840m to the owner in dividends and share buybacks – an effective “remortgaging” of the asset, which brings its total debt to $2.8bn.The company’s annual report calls Darktrace a “British technology champion” but that’s hard to argue since none of its eight directors is UK-based, while seven represent Thoma Bravo. The Cambridge-based company is instead at risk of joining a growing list of UK names to have left for the US, only for it to dawn that they have become a “small fish in a big pond”.There is no reason Darktrace needs to join that troubled club. The total addressable market for cybersecurity services is set to balloon, and smaller firms will need protection too. The first step is simple: end the leadership churn.Darktrace declined to comment.
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