Endava FY2025 Earnings Miss: A Deep Dive into Performance and Market Impact

Introduction: A Miss in a Cautious Market

Endava (DAVA), a global IT services provider, delivered its full-year 2025 earnings report amid a challenging macroeconomic backdrop. The IT services sector has faced headwinds in 2025, with mixed growth signals and elevated interest rates. Investors have been cautiously optimistic, yet sensitive to earnings surprises, especially in the tech and professional services space. This report underlines the company’s struggle to meet expectations and highlights the diverging market responses between stock-specific and sector-wide events.

Earnings Overview & Context

Endava reported total revenue of $186.78 million for FY2025, representing a modest topline performance. However, the company missed expectations, particularly in earnings per share (EPS) and net income. Key metrics include:

• Total Revenue: $186.78 million
• Operating Income: $3.80 million
• Net Income: $1.17 million
• Earnings per Share (EPS): $0.02

The operating income and net income reflect a tight cost structure, with operating expenses totaling $42.64 million and interest expenses slightly outpacing interest income. Despite a marginal operating profit, the net income attributable to common shareholders fell short of broader market expectations, especially in the context of rising input costs and interest rate pressures.

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Backtest Analyses

Stock Backtest: Negative Reaction to Earnings Misses

DAVA’s stock has historically shown a strong adverse reaction to earnings misses. The backtest data reveals that the stock experienced consistently negative returns in the days following such events, with a win rate of just 33.33% across 3, 10, and 30-day windows. The average decline over 30 days was a notable 10.16%, underscoring the market’s sensitivity to Endava’s earnings performance.

Investors should be aware that these results signal a lack of confidence in the company’s ability to consistently deliver earnings, and such misses often trigger sell-offs. This pattern highlights the importance of monitoring DAVA’s earnings calendar and being prepared for post-announcement volatility.

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Industry Backtest: A Contrasting Sector-Wide Picture

By contrast, the broader IT Services industry did not demonstrate a significant market reaction to earnings misses in the backtest analysis. The maximum return observed in the sector post-miss was only 3.69%, occurring at the 52-day mark. This lack of immediate or consistent response suggests that IT Services stocks, on average, are less sensitive to earnings surprises than DAVA.

This divergence implies that while DAVA's stock may be uniquely sensitive to earnings misses, the broader industry remains relatively stable post-announcement. Thus, investors may need to treat DAVA differently from its peers when assessing earnings risk.

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Driver Analysis & Implications

Endava's earnings miss in FY2025 was driven primarily by high operating expenses and the impact of interest costs. The company spent $37.75 million in marketing, selling, and general administrative expenses—nearly 20% of total revenue—highlighting inefficiencies or pressures in cost management.

Additionally, the net interest expense of $4.89 million, coupled with only $8.07 million in interest income, reflects the ongoing pressure from higher borrowing costs. These factors point to a fragile margin structure and limited room for error as the company scales.

From a macroeconomic standpoint, rising interest rates and inflationary pressures have increased borrowing costs across the board, impacting companies like Endava that rely on working capital and have debt-heavy balance sheets. This context suggests that Endava’s financial performance is not only dependent on internal cost control but also on the broader economic environment.

Investment Strategies & Recommendations

For short-term investors, the recent earnings miss and historically negative post-miss performance indicate a need for caution. Positioning for volatility or hedging against downside risk may be prudent, particularly in the near term following earnings releases. Investors might consider short-term options or reduced exposure until the company provides clearer guidance or demonstrates better margin control.

For long-term investors, the challenge is to assess whether this earnings miss is a one-off issue or a symptom of deeper structural problems. If Endava can improve operating efficiencies and manage interest expenses, there may still be long-term value. However, the lack of strong market confidence post-miss suggests that patience and selective entry points might be necessary.

Conclusion & Outlook

Endava’s FY2025 earnings report delivered a mixed picture—modest revenue growth but disappointing profitability. The earnings miss has triggered historically negative market reactions, highlighting the stock’s sensitivity to financial performance. While the broader IT Services sector remains relatively neutral to such misses, DAVA stands out as a company with high investor expectations and a history of underperformance.

The next catalyst for investors to watch will be Endava’s guidance for FY2026, which will provide critical insight into the company’s ability to navigate the current macroeconomic environment. Until then, investors should approach with caution, given the stock’s historically strong negative returns following earnings disappointments.