NCC (LON: NCC) and Shearwater (LON: SWH) shares have both fallen around 40% in London Friday morning. The cause is trading updates showing that the cybersecurity business has become a tough one in which to get potential customers to commit. Of course this is distressing for shareholders of those firms but we should at least examine it as a guidance to what might happen at Darktrace (LON: DARK). Yes, of curse it is possible for some companies in a sector to do badly, others well. But we must also consider the idea that it is the sector having the problems, not just the individual companies.
NCC announced that results are going to be considerably below expectations. The cause? From the announcement: “Buying decision delays and cancellations now exacerbated by North America tech sector client layoffs” or, as we might put that, getting potential customers to actually made decisions is becoming more difficult. From Shearwater: “with customers deferring investment decisions and in some cases extending spending freezes.” is different wording but much the same message. It's getting more difficult to get people to crack open their wallets and actually buy something.
Shearwater share price from London Stock Exchange
Now, what we're being told here by NCC and Shearwater, sure, that's interesting. We've missed the grand shift in prices as a result of the news of course, although we can speculate on how much further it will go, even whether it will reverse. But we can also try to use this information to inform about other companies in the same sector. Darktrace for example.
As we've noted before Darktrace is in much the same business, cypersecurity to corporates. It's possible for us to assume that the NCC and Shearwater problems are because Darktrace is eating their lunch. We can also look at the same information and assume that it's the sector as a whole having a problem. In which case we'd rather assume a knock on effect upon Darktrace's results as and when we see the next set.
We don't know, of course we don't know. But Darktrace shares have been marked down near 5% today on such considerations. Such increases in uncertainty are never value additive.
