Darktrace shares surge after probe into finances closes

Shares in cyber security firm Darktrace have surged after it said a probe into its finances has closed, and as it reported a jump in customers amid the evolving ‘ ChatGPT era’. The FTSE 250-listed firm told investors that the independent review led by accounting giant Ernst & Young (EY) had concluded. EY was hired in February to investigate its financial controls and processes after a US short-seller raised concerns about possible irregularities in its accounting. Quintessential Capital Management accused the firm of driving up the value of its shares before floating on the London Stock Exchange in 2021. But Darktrace said the findings of the report do not impact upon previous financial statements, nor do they change its conviction that they ‘fairly represent’ its financial position and results. Nevertheless, it said EY found some areas where its systems, processes or controls could be improved. Darktrace’s announcement of EY’s findings does little to mollify our concerns, first highlighted in our earlier analysis Quintessential Capital Management For example, the auditor identified a small number of errors and inconsistencies in new contracts. But Darktrace insisted that it has a ‘culture of continuous improvement’ at the company, and would take on board EY’s ‘valuable recommendations’ in improving its systems. Danni Hewson, head of financial analysis at AJ Bell , said investors ‘breathed a huge sigh of relief’ at the conclusion of the investigation into its books. But the founder of Quintessential Capital Management, Gabriel Grego, said: ‘Darktrace’s announcement of EY’s findings does little to mollify our concerns, first highlighted in our earlier analysis. ‘Notably, EY’s review has identified errors and inconsistencies in Darktrace’s systems, processes and controls, which affirm our prior assertions regarding the company’s questionable financial practices.’ He urged the company to fully publicise the details of the review so that an ‘open dialogue’ can be had. Meanwhile, Darktrace revealed that its sales climbed in the latest financial year as it grew its customer base amid rising demand for artificial intelligence (AI) cybersecurity. Revenues jumped by 29% in the year to the end of June, compared to the previous year, and the number of customers grew by 18%. Poppy Gustafsson, the group’s chief executive, said: ‘The release of ChatGPT late last year created a significant shift impacting consumers and, perhaps more importantly, enterprises. ‘The risks of IP loss, data protection breaches and evergreen novel attacks at scale are now much higher. AI is increasingly fighting against AI so building a bigger database of known attack data is not enough. ‘Deploying Darktrace’s enterprise cyber-AI allows organisations to respond at machine speed to attacks that have never been seen before, making our technology core to cyber-defence in this evolving ChatGPT era.’ ChatGPT was launched by OpenAI and uses the technology to answer questions, produce stories or letters, and have human-like conversations with users. Darktrace said its expects sales to accelerate in the second half of the 2024 financial year as it protects its growing customer base against fast-evolving cyber threats. But macroeconomic uncertainty is continuing to affect new customers being secured and some existing customer behaviour, it revealed. Shares in the company were up by nearly a fifth on Tuesday.