Cybersecurity in modern realities will be in trend for a long time. This can be fairly judged by the data on the demand for shares of companies engaged in such activities. It has grown steadily in the last two years.
At first, the rise was due to the coronavirus pandemic that swept the whole world. Office employees were sent en masse to the remote, but employers were obliged to ensure their computer security, as they continued to access corporate data over the Internet. We needed private virtual networks and VPNs, equipment with security software, etc. There was even a new concept - SASE, under which an IT model with the functions of network and security services was hidden.
The rise, which began in 2020, continued in 2021. But then there was a general decline in the securities market of IT companies. The reason was the announced plans of the Fed to tighten its monetary strategy. But after the beginning of the conflict in Ukraine and the news about the increased hacker cyberattacks on government websites, the situation has changed. Demand began to grow actively again.
According to official financial statistics, subsidies to the cybersecurity sector increased by $150 million in 2021. It is difficult to say how much they will grow this year, given the current situation. Nevertheless, due to the relevance of the topic, it is now worth considering the option of investing in shares of cybersecurity companies.
CrowdStrike is the undisputed leader
CrowdStrike (CRWD) occupies one of the leading positions in the cybersecurity sector. The direction of its work is to ensure the protection of services and computer systems.
The company has its own autonomous AI-driven platform with a cloud architecture. It can collect a huge amount of data from the ecosystem in which the endpoints are combined. In a day, AI is able to process approximately 1 trillion signals about violations that threaten security. He not only blocks attacks, but also learns in parallel. Thanks to this, the platform's capabilities to provide protection against cyber attacks are constantly increasing.
About 50% of Fortune 100 companies are CrowdStrike customers. The company shows good growth dynamics. The customer base expanded by 75% in 2021. Today it includes more than 14.6 thousand companies. Accordingly, the profit also increased (by 69%), which amounted to $1.3 billion. A free cash flow of $411 million was generated (67% more than in 2020). The issuer's market share increased by 4% and amounted to 14.2%.
According to forecasts, CrowdStrike has excellent potential for development. It will reach its "ceiling" in the very distant future. In the meantime, the expansion of the targeted market guarantees the company the possibility of stable progress. Analysts are confident that the market will more than double by 2025 (from $55 billion to $116 billion). The issuer's good prospects are indicated by the fact that already now, being at the initial stage, CrowdStrike has achieved a long-term adjusted gross profit.
C3.a1 - AI on guard
Undoubtedly deserves attention C3.ai (AI), engaged in the creation of algorithms that allow the implementation of AI in large and very complex enterprises. With the help of the company's products, operational efficiency and corporate security are improved, the risks of illegal transactions aimed at money laundering are reduced.
By the end of 2020, the issuer's profit increased by 71% against the background of the overall rise of the IT industry. In 2021, the pace decreased slightly, but income growth was also recorded, only more modest — by 17%. The indicator reached the level of $183 million.
Objective facts speak in favor of the company. Its clients include such well-known brands as AstraZeneca, Baker Hughes and Shell, as well as one of the partners is the US Air Force. Balance C3.ai sufficient to compensate for all costs with a small amount of free cash flow.
And yet, at the end of 2021, the issuer's shares collapsed by almost 80%, which was caused by investors' concern about the slowdown in income growth. They were also worried about the lack of new large customers and the increase in losses. But in 2022, the situation began to improve. At the end of the first quarter, C3.a1 revenue amounted to $111 million, free cash flow — $20 million. The company has about a billion dollars in cash and investments.
Representatives of the company assure that by the end of 2022 an impressive profit will be received - 35-36% more than last year. Now there are no obstacles to growth, which means it will be stable and planned. This is facilitated by the expansion of the targeted market, which should reach $271 billion by 2024. Consequently, the prospects for the coming years have C3.ai very good.
Fortinet Inc - at the forefront of cybersecurity
Fortinet Inc. (FTNT) specializes in the field of information security systems. It offers technological solutions based on the integrated Fortinet Security Fabric platform for automatic detection and reflection of digital attacks. Protection can be used for data stored in the cloud (works for Amazon Web Services, Microsoft Azure, Google Cloud, Oracle Cloud), on IoT devices and endpoints of corporate networks. The company's products are capable of providing full-fledged network and infrastructure security.
The result of 2021 showed an increase in the issuer's securities by 75%. In February of this year, the financial statements for the last quarter and for the year as a whole were published. Quarterly revenue reached the level of $963.6 million – 29% more than in the 4th quarter of 2020. Annual profit exceeded $3.3 billion, showing an increase of 29%. A free cash flow of $1.2 billion was generated.
Financial success is explained by the increased demand for the company's products. In 2022, it plans to launch a new FortiGate 3000F firewall based on its own NP7 and CP9 processors. The product will provide support for the creation of hybrid IT architectures that are used to more effectively implement digital innovations and increase the dynamics of business growth. The new firewall will have the highest performance in its sector.
According to analysts' forecasts, the company's revenue should reach $4.3 billion this year. That is, the indicator will grow again by at least 29%. Fortinet Inc. securities are currently trading with a P/S multiplier slightly below 15, but this indicator is higher than the historical average. Judging by the company's recent successes, its shares will outperform the market, which makes them attractive for investment in the long term.
Qualys - cloud-based digital security system
Qualys (QLYS) has its own cloud platform at its disposal to provide system protection against cyber attacks. It has the most extensive information base on vulnerability signatures. Thanks to the company's products, customers can improve and automate corporate security processes while reducing costs. The partners include Amazon Web Services, Microsoft Azure and Google Cloud Platform cloud services.
Qualys helps clients to collect and analyze a huge amount of information. The company's solutions make it possible to detect and qualify threats in time, and then issue recommendations for their neutralization. The customer base today includes 19 thousand enterprises from 120 countries, among which there are many large and well-known (from the Forbes Global 50 list — almost 65%, from the Global 500 - 45%).
Qualys actively reacts to all changes in the cybersecurity technology sector, keeps its finger on the pulse, and therefore offers its customers the most modern solutions. One of the latest innovations is Context XDR. This product is designed for full-scale data tracking at all levels (network, cloud, applications, end devices), timely detection of potential threats and their neutralization.
According to the latest report presented in February of this year, the revenue growth of Qualys was 16%. In 2021, the company made a profit of $109.8 million. GAAP net income is over $21.8 million ($0.55 per diluted share). According to the forecast, sales will grow by 12.8% in 2022.
Microsoft and Google did not stay away
Realizing the prospects of business in the field of cybersecurity, two global giants decided to join it — Microsoft and Google. Both have already started reporting on their achievements.
According to Microsoft (MSFT), the profit from projects in the field of protection against cyber attacks has already reached $10 billion. More than 40 thousand enterprises have become clients of the company in this direction. It is planned to expand the customer base by 40% annually. The issuer also wants to become one of the industry leaders as soon as possible. To this end, last year RiskIQ, specializing in protection against phishing attacks and virus software, was bought out for $500 million. Microsoft also became the owner of CloudKnox Security, which occupies the first position among competitors in the field of access rights management to cloud services.
The company began to add cybersecurity tools to its Office 365 system. She launched a strategy to promote information security services along with the promotion of her own cloud platform. With a successful scenario, Microsoft has every chance to bypass already recognized leaders such as Okta, CrowdStrike and Splunk.
Google is not far behind, which this year intends to buy Mandiant, which specializes in cybersecurity. If approval is received from the regulator, the transaction will lead to an increase in the attractiveness of the company's cloud service for customers. And this will give you a chance to join the leaders of the industry.
Alphabet (GOOGL) Google is participating in the race. In 2022, the company became the owner of Siemplify, which develops security management systems, solutions for automating protection and timely repelling threats. The products of the Israeli startup are planned to be implemented in Chronicle.
Cybersecurity segment companies preparing for IPO
Netskope, Illumio and Menlo Security are of interest to potential investors. They are just preparing for an IPO, but they show good potential. Netskope managed to raise about $300 million and was valued at $7.5 billion. Illumio's figures are a little more modest: fundraising in the amount of $225 million and an estimate of $2.75 billion.
It is worth paying attention to the developer of algorithms for cybersecurity systems Darktrace (DARK). The IPO took place in the spring of 2921. Another interesting contender is SentinelOne, which successfully carried out the listing last summer. It releases cybersecurity software and in the near future, according to experts, may become a leading competitor to CrowdStrike.
The cybersecurity segment has huge prospects for investment, but it is still poorly disclosed, the securities of the companies listed in the review may seem expensive at the moment, but it should be taken into account how fast the information security direction is developing and how quickly the profitability of issuers is growing.