Darktrace Stock Price Shoots 26% after EY Audits Company’s Financial Processes

On Tuesday, July 18, the stock price of Darktrace Plc (LON: DARK) shot up by 26% after the British cybersecurity firm stated that auditing giant Ernst & Young (EY) had completed a review of the company’s financial processes and controls.

Earlier this year, New York-based asset management firm Quintessential Capital Management accused Darktrace of engaging in fraudulent practices, in order to artificially inflate its sales. In February 2023, the DARK stock became the target of the short-selling campaign.

In a press release on Tuesday, July 18, Darktrace announced that EY had completed its review of the company’s contracts and internal financial processes. The review revealed a “small number of errors and inconsistencies” in some contracts, but these issues were deemed not significant enough to impact the company’s financial statements. Darktrace noted that EY identified a number of areas already known to Darktrace where systems, processes or controls could be improved, and, when evaluating its channel processes, reviewed a risk-weighted sample of new channel contracts which identified a small number of errors and inconsistencies. Management nor the Board consider these to be material to the financial statements and controls enhancements in this area are already underway.

Commenting on the development, Quintessential said the findings “only validate our initial concerns. We call upon Darktrace to fully unveil the details of the EY review and facilitate an open dialogue on its findings”.

As of Tuesday’s closing the DARK stock was trading at 377.60 GBX on the London Stock Exchange.

Darktrace Benefitting from Rising AI Interest

Darktrace reported benefiting from the growing interest in artificial intelligence, particularly in tools like ChatGPT. The cybersecurity company experienced increased sales due to client demand for generative AI. Darktrace itself uses AI to combat cyber threats, and now companies are also utilizing their tools to detect and prevent cyberattacks facilitated by generative AI systems.

The firm projected an annual recurring revenue of at least $626.5 million for the financial year ending on June 30, a 29% year-over-year increase. In the June quarter, Darktrace gained 396 new customers, and over the entire financial year, it acquired 1,362 new customers, expanding its total customer base to 8,799.

The outcome of the EY review is a major victory for Darktrace and shall allow the firm to focus on future business growth prospects.