Earnings call transcript: WithSecure sees revenue growth, stock falls in Q2 2025

WithSecure Oyj reported a 3% revenue increase for Q2 2025, but its stock dropped 7.4% as a 22% decline in managed services, due to large enterprise churn, offset strong 13% growth in Elements Cloud and Co Security Services and 54% in Cloud Protection for Salesforce, resulting in a modest 3% overall Cloud ARR growth. The company is strategically restructuring, divesting non-core assets and focusing on mid-market and cloud services, projecting €6.5 million in annual cost savings. Despite the immediate market reaction, management reaffirmed its full-year ARR growth guidance for Elements (10-20%) and CPSF (20-35%), suggesting confidence in its strategic pivot, with some analysis indicating the stock may be undervalued.

Analysis

WithSecure Oyj's Q2 2025 results present a clear strategic inflection point, where positive operational developments were overshadowed by a significant legacy business decline, leading to a negative market reaction. Despite a 3% overall revenue increase, the stock fell 7.4% as a severe 22% contraction in managed services revenue, caused by the churn of a large enterprise client, muted investor sentiment. This decline offset an otherwise robust 13% growth in the strategic Elements Cloud and Co Security Services segment. Consequently, total Cloud ARR growth was a modest 3%, creating a significant gap to the company's full-year guidance. Management is actively addressing this by divesting non-core assets and restructuring to achieve an estimated €6.5 million in annual net cost savings, with impacts beginning in Q3. The company's forward-looking strategy hinges on capturing mid-market opportunities through partners and capitalizing on the growing 'digital sovereignty' trend in Europe. While the reaffirmed full-year Elements ARR growth guidance of 10-20% implies a very steep and back-loaded acceleration in the second half, management expresses confidence based on its sales funnel and the scaling potential of new partnerships. The stock's 44.19% gain over the past six months contrasts sharply with the immediate post-earnings drop, while fair value analysis suggests it may be undervalued, reflecting the market's weighing of execution risk against long-term strategic potential.

Key Decisions for Investors

• Investors should view WithSecure as a turnaround play, where the primary thesis is whether the high-growth Elements Cloud business can outpace the structural decline in legacy managed services.
• The credibility of the investment case hinges on H2 execution; therefore, closely monitor Q3 and Q4 Cloud ARR figures for the steep acceleration required to meet the reaffirmed 10-20% annual growth guidance.
• While the stock's recent drop may present a value opportunity for those confident in the strategic pivot, the significant execution risk warrants caution until tangible proof of an accelerating growth trajectory emerges.
• Consider the €6.5 million in annual net cost savings as a key support for profitability, which could provide a downside buffer to EBITDA margins even if ARR growth falls short of targets.