A prominent UK cybersecurity stock is under attack from short sellers. Here’s what you need to know
Darktrace, one of the U.K.’s largest cybersecurity companies, was founded in 2013 by a group of former intelligence experts and mathematicians.
Omar Marques | SOPA Images | LightRocket via Getty Images
Cybersecurity company Darktrace, one of the U.K.’s most prominent tech names, has found itself under attack from short sellers.
The company, whose tools allow firms to combat cyberthreats with artificial intelligence, was last week targeted in a report by New York-based asset manager Quintessential Capital Management.
QCM, whose stated aim is “exposing fraud and criminal conduct in public companies around the world,” claims it has had a 100% success rate in its activist campaigns.
The company told Reuters it holds a short position of 1.3% in Darktrace shares.
London-based hedge fund Marshall Wace also shorted Darktrace, according to data site Breakout Point.
Short selling is a strategy in which investors bet on the price of a stock going down in value. A trader borrows the stock and then sells it on the assumption that it will fall, before buying it back at a discounted price and pocketing the spread.
What is Darktrace?
Darktrace, one of the U.K.’s largest cybersecurity companies, was founded in 2013 by a group of former intelligence experts and mathematicians.
The Cambridge-headquartered company says its technology uses AI to detect and respond to cyberthreats in a business’ IT systems.
The company floated on the London Stock Exchange in 2021, and its debut was seen as a key victory in the U.K.’s bid to lure more high-growth tech startups to the London market after its withdrawal from the European Union.
The stock’s performance following the listing has been underwhelming. After initially rising to an all-time high of £9.45 ($11.58) in October 2021, Darktrace shares have since plunged dramatically in tandem with a broader slump in global tech stocks.
As of Monday afternoon, Darktrace shares were trading at a price of £2.32, down 37% in the last 12 months.
Darktrace share price performance in the last 12 months.
In August, the firm opened takeover talks with U.S. private equity firm Thoma Bravo. However, Thoma Bravo walked away from the deal a month later after the two sides failed to reach an agreement.
Why is it under attack?
On Tuesday, U.S. hedge fund QCM said it had taken a short position out against Darktrace and published a lengthy report detailing alleged flaws in Darktrace’s accounting.
QCM said that, following an investigation into Darktrace’s business model and selling practices, it was “deeply skeptical about the validity of Darktrace’s financial statements” and believed sales and growth rates may have been overstated.
“We would like to give our strongest possible warning to investors and believe that DT’s equity is overvalued and liable to a major correction, or worse,” QCM said in the report.
Darktrace was accused by QCM of engaging in “channel stuffing” and “round-tripping” — activities that artificially inflate a company’s reported sales — involving individuals with ties to organized crime, money laundering and fraud.
Darktrace didn’t directly address those allegations. On Wednesday, the firm’s CEO Poppy Gustafsson issued a statement defending the company from what she called “unfounded inferences” made by QCM.
Separately, QCM suggested Darktrace may have inflated its revenues by booking unearned revenues as actual sales.
The company occasionally books revenue from payments for contracts it receives before delivering its service to clients as deferred revenue, according to the report.
This is not uncommon among subscription-based software companies. However, QCM noted deferred revenue as a percentage of Darktrace’s sales had dropped between 2018 and 2022, suggesting the firm “may have increasingly been booking unearned revenue as actual sales.”
In response, Darktrace said: “Rarely, customers will pay full contract values in advance but because this is infrequent, non-current deferred revenue balances will decline as these contracts run down unless there is another unusual, large, in-advance payment.”
QCM alleged Darktrace may have tried to fill gaps in its receivables left by clients dropping out of sales negotiations through marketing sponsorships with indebted resellers and using shell companies to pose as phantom clients.
“Organisations that transact with the channel will typically co-host marketing events with their partners. Partner marketing events are a normal course of business for almost all software businesses and Darktrace is no different,” Darktrace said Wednesday.
“This has been, and remains, a very small part of Darktrace’s marketing and the costs of them over the last five years has consistently been substantially below 0.5% of Darktrace’s revenue,” Darktrace added.
Darktrace was not immediately available for comment when contacted by CNBC.
Separately Wednesday, Darktrace said it would embark on a share buyback worth up to £75 million ($92 million) to be completed no later than Oct. 31, 2023.
The Lynch connection
It’s worth noting that, even before the QCM report, there were clouds hanging over Darktrace’s business. Analysts have criticized the company over an allegedly aggressive sales culture and doubts over the value of its technology.
Darktrace is also backed by Mike Lynch, the British tech tycoon.
Mike Lynch, former CEO of Autonomy.
Hollie Adams | Bloomberg via Getty Images
Lynch founded the enterprise software firm Autonomy, whose sale to Hewlett-Packard was mired in scandal over accusations that Lynch plotted to inflate the value of Autonomy before it was bought by HP for almost $11 billion in 2011.
In 2022, a British judge ruled in favor of HP in a civil fraud case against Lynch. Lynch, an influential figure in the U.K.’s tech scene, faces a possible criminal trial in the U.S. after the U.K. government approved his extradition last year.
He has repeatedly denied the allegations.
Several executives at Darktrace, including Gustafsson and Chief Strategy Officer Nicole Eagan, previously worked for Autonomy.
The QCM report also raised concerns over the connections between Darktrace and Autonomy.
“Darktrace has been led or strongly influenced by many of the very same individuals that participated in the Autonomy debacle,” QCM said in its report.
“If our allegations are confirmed, we expect Darktrace to follow the same tragic destiny of its predecessor, Autonomy,” QCM said.
Lynch is reportedly no longer involved with Darktrace’s management, but remains a significant shareholder.
Lynch is no longer involved with Darktrace’s management, but remains its sixth-largest shareholder, according to Refinitiv Eikon data.
Meanwhile, Darktrace is also suffering from uncertainty related to the wider macroeconomic environment. The company lowered its forecast for annual recurring revenue growth for the year ending June 2023 to between 29% and 31.5%, down from an earlier forecast of 31% to 34%, citing weaker customer growth.
Workday CEO Carl Eschenbach, right, walks to the morning session during the Allen & Co. Media and Technology Conference in Sun Valley, Idaho, on July 11, 2025.
David Paul Morris | Bloomberg | Getty Images
Workday shares slid more than 5% in extended trading Tuesday after the finance and human resources software maker issued quarterly margin guidance that came in below Wall Street projections.
Here’s how the company did in comparison with LSEG consensus:
- Earnings per share: $2.32 adjusted vs. $2.18 expected
- Revenue: $2.43 billion vs. $2.42 billion expected
The company forecast a fourth-quarter adjusted operating margin of at least 28.5% and $2.355 billion in subscription revenue, according to a statement. The StreetAccount consensus was a 28.7% margin and $2.35 billion in subscription revenue.
Workday’s revenue grew about 13% year over year in the quarter, which ended on Oct. 31. Net income of $252 million, or 94 cents per share, was up from $193 million, or 72 cents per share, in the same quarter a year ago.
Subscription revenue in the third quarter totaled $2.24 billion, with an adjusted operating margin of 28.5%. Analysts polled by StreetAccount had anticipated $2.24 billion in subscription revenue and a 28.1% margin.
During the fiscal third quarter, Workday announced artificial intelligence agents for analyzing employee performance testing financial health, and the company revealed plans to buy AI and learning software startup Sana for $1.1 billion. Also, activist investor Elliott Management said it had built a Workday stake worth over $2 billion.
Workday has seen its stock decline this year as pundits discuss the risk of generative AI tools threatening the growth prospects for cloud software incumbents. Company shares have fallen 9% so far in 2025, while the Nasdaq Composite index has gained 19%.
WATCH: Workday CEO Carl Eschenbach: There’s a narrative that AI is eating into software, that is false
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Enrique Lores, President and Chief Executive Officer of HP Inc. speaks at COMPUTEX forum in Taipei, Taiwan June 3, 2024.
Ann Wang | Reuters
PC and printer maker HP Inc. said Tuesday it’ll lower its headcount by 4,000 to 6,000 people, representing a cut of up to 10%. HP also issued a lower-than-expected earnings projection for the new fiscal year.
Shares of the company fell 6% in extended trading.
Here’s how HP did versus LSEG consensus estimates:
- EPS: 93 cents adjusted vs. 92 cents expected
- Revenue: $14.64 billion vs. $14.48 billion expected
HP’s revenue increased 4% year over year in the quarter, which ended on Oct. 31, according to a statement. Net income of $795 million, or 84 cents per share, was up from $763 million, or 80 cents per share, in the same quarter a year ago.
For the first quarter of HP’s fiscal 2026, the company called for 73 cents to 81 cents in adjusted net earnings per share, while the LSEG consensus was 79 cents. For all of fiscal 2026, HP sees $2.90 to $3.20 in adjusted per share, below the LSEG consensus of $3.33.
“HP’s outlook reflects the added cost driven by the current U.S. trade-related regulations in place, and associated mitigations,” the company said in the statement.
The company’s personal systems unit that includes desktop and laptop computers contributed $10.35 billion in revenue, up 8% and above StreetAccount’s $10.15 billion consensus.
HP said it expects to complete the headcount reduction by the end of fiscal 2028. The company said the restructuring will result in savings of at least $1 billion in annualized gross run rate by the end of fiscal 2028. HP said it expects to incur about $650 million in charges, of which $250 million will happen in fiscal 2026.
“As we look ahead, we see a significant opportunity to embed AI into HP to accelerate product innovation, improve customer satisfaction and boost productivity,” HP CEO Enrique Lores said on a conference call with analysts.
Corporate executives across industries are hoping to draw on generative artificial intelligence products to speed up software developers and automate customer service. Cloud providers are buying large supplies of memory to meet computing demand from companies that build AI models, such as Anthropic and OpenAI, leading to a rise in the cost per gigabyte of RAM this year.
HP, whose headcount stood at 58,000 as of December, announced a similarly sized round of layoffs in 2022. Several other technology companies have announced layoffs in recent months as U.S. consumers face higher prices and interest rates.
“Memory costs are currently 15 to 18% of the cost of a typical PC, and while an increase was expected, its rate has accelerated in the last few weeks,” Lores said.
The company does expect to benefit after Microsoft stopped supporting its Windows 10 operating system in October, which will lead people to buy new machines, Lores said. Around 60% of HP’s installed base has moved to Windows 11, he said.
HP’s printing business did $4.3 billion in revenue, down 4%. The pricing environment is competitive, and customers are putting off purchases of new models, said Karen Parkhill, the company’s finance chief.
As of Tuesday’s close, HP shares were down 25% for the year, while the S&P 500 index has gained 15% in the same period.
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