Overview
Needham has cut its price target for Varonis Systems (NASDAQ:VRNS) to $30.00 from $55.00 but retained a Buy rating on the data security software company. The stock, quoted at $26.53, has seen notable downward pressure, losing in excess of 20% over the last week and trading close to a 52-week low of $25.03.
SaaS disclosures and metrics
The research firm pointed to recently disclosed details about Varonis Software-as-a-Service business. Management reported SaaS net revenue retention of approximately 110% in calendar year 2025, and SaaS annual recurring revenue excluding conversions grew 32% year-over-year. Those metrics sit alongside a reported gross profit margin of 78.83%, based on InvestingPro data.
Despite those strengths, Needham highlighted a central ambiguity: the extent to which the company's non-SaaS ARR will ultimately migrate into SaaS ARR. Management provided a conversion projection in a range of $50 million to $75 million against a non-SaaS ARR base of $745 million exiting 2025. Needham said it remains uncertain how much of that base will convert.
Cash flow, churn and guidance
The firm warned that projected non-SaaS ARR churn of roughly $30 million to $55 million would constitute an unanticipated headwind to 2026 free cash flow. That dynamic helps explain guidance centered on $102.5 million at the midpoint for 2026 free cash flow - a figure Needham noted is below the sell-sides forecast of $151.0 million.
Varonis is not currently profitable on its reported results, but InvestingPro data shows analysts expect the company to reach profitability in the coming fiscal year, with an EPS forecast of $0.15 for FY2026.
Balance sheet and recent growth
Needham underscored that Varonis retains solid liquidity, with a current ratio of 1.97, indicating that current assets exceed short-term obligations. The company continues to post revenue expansion, with growth of 13.17% over the last twelve months, a point the research firm said supports its view that Varonis could emerge from 2026 in a stronger position despite near-term constraints.
Quarterly performance and analyst reactions
Varonis fourth-quarter 2025 results showed an earnings per share of $0.08, well ahead of the $0.03 consensus estimate, representing a 166.67% surprise. Quarterly revenue came in at $173.4 million versus an expected $168.51 million. Annual recurring revenue rose 16.1%, outpacing an anticipated 14.5% increase. Management attributed this performance to a robust SaaS business and a record number of conversions from on-premises customers.
Even with those results, other sell-side firms have moderated valuations. Truist Securities lowered its price target for Varonis from $42.00 to $34.00 while preserving a Buy rating, citing operational headwinds that affect the company's near-term outlook. Needhams reduction in target and Truists move signal mixed responses among analysts and investors to the company's transition dynamics and recent earnings.
Conclusion
Needham expects Varonis to finish 2026 in a healthier position but flagged several near-term constraints, including uncertainty surrounding non-SaaS ARR migrations, potential NRR expansion, and the pace of new business growth. The combination of solid SaaS metrics and high gross margins on one hand, and conversion and churn uncertainty on the other, leaves investors weighing upside potential against operational risks as the company navigates its SaaS transition.