Darktrace and Adani share price collapse are eerily similar

Darktrace (LON: DARK) share price has collapsed in the past few months as concerns about the technology company remain. The stock plunged to an all-time low of 199p, which was about 60% below the highest point in 2022. This decline is in line with what I predicted in this report.

Is Darktrace the next Adani?

Short-seller reports have made headlines in 2023. The most prominent one was the one by Hindenberg Research, who accused India’s Adani Group of being a mega fraud. In the aftermath, Adani share price has collapsed, costing investors over $74 billion. 

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Darktrace has also been targeted by short-sellers. In a report, Quintessential Capital Management accused Darktrace of accounting irregularities that dated before the company went public. Some of the ways the company inflated sales were channel stuffing, disguised hardware sales, and round-tripping of anticipated sales. The report also had quests on deferred revenue, saying:

“Unless this reduction reflects a change in contracting terms, we question whether Darktrace, striving to inflate its revenue figures30, may have increasingly been booking unearned revenue as actual sales.”

Like Adani, Darktrace issued a blistering attack on the short-seller report saying that it misrepresented facts. 

Darktrace has been criticized for more than a decade because of its ties to Autonomy. Autonomy was a company that HP bought in 2011 in a $11 billion deal. Shortly afterwards, HP took a $8.8 billion haircut saying that Autonomy had misrepresented facts. Autonomy’s founder, Mark Lynch, is now battling extradition to the US.

Darktrace share price has also collapsed because of the weakness of the business. In its recent trading statement, the company said that the number of expected customer additions will be much lower in 2023. It also expects that its annual recurring revenue will rise by between 29% and 31.5%, lower than the previous guidance. 

Still, not all analysts are convinced about the company’s future. In a recent note, analysts at Berenberg reiterated that Darktrace was a good company as its profits and cash generation continue rising. 

Darktrace share price forecast

The daily chart shows that the DARK share price has been in a constant downward spiral in the past few months. This sell-off gained steam after it downgraded its forward guidance. As it dropped, it moved below the key support at 280p, the lowest level on October 17 last year. It has crashed below all moving averages while the Relative Strength Index (RSI) has moved slightly below the oversold level. 

Therefore, the shares will likely continue falling as the headline risks coupled with slowing sales continue. A move above the resistance point at 280p will invalidate the bearish view.