Cybersecurity experts in s Hort supply
Global spending on fighting online crime may run to $8-trillion this year, offering an opportunity for investors, writes
Tackling internet crime is big business and is expected to continue growing at doubledigit rates to the end of this decade at least.
In fact, the global cybersecurity market is valued at roughly $202bn in 2022 — or slightly less than Greece’s GDP — according to Grand View Research, a California-based consultancy and market research firm. The company estimates this figure to grow at a compounded rate of more than 12% a year to 2030.
Surely, then, there is money to be made for investors too. But let’s first consider the lie of the land and the factors that are driving the surge in spending on cybersecurity.
Gartner, a US-based management consultancy, annually surveys companies’ technology chiefs. In its most recent survey, of 2,203 tech executives across 81 nations, 70% indicated that they’ll increase spending on cyber and information security this year.
This speaks to Microsoft CEO Satya Nadella’s April 2019 Twitter message, in which he said: “Cybersecurity is the central challenge of the digital age.” Even the World Economic Forum, that annual meeting of a cabal of capitalists, has pushed cybersecurity up its agenda to be among the top issues affecting global profitmaking.
The relentless attacks by cyber criminals on companies’ and governments’ data infrastructure continues to grow, with added impetus since the Covid lockdowns of two years ago. In 2022, overall global cyberattacks increased by 38% above the 2021 figure, according to the 2023 cybersecurity report of
Check Point Software, a Tel Aviv-based cybersecurity company.
The figures are staggering: educational and research institutions experienced a 43% jump in cyberattacks during 2022 to reach an average of 2,314 attacks a week per organisation. Worryingly, health-care institutions reported a 74% increase to an average 1,463 attacks a week per organisation, according to the Check Point Software report. “From hospitals and clinics to research facilities, attackers have been focusing on the health-care industry since the beginning of the Covid pandemic, seeking financial gain,” according to the report’s authors.
Cybercrimes, which includes certain cyberattacks, is predicted to cost the world $8-trillion this year, according to Cybersecurity Ventures, a US-based cyber economy research outfit. “If it were measured as a country, cybercrime would be the world’s third-largest economy after the US and China,” the company said following its prediction late last year.
A back-of-the-matchbox calculation shows that the entire spend on cybersecurity
From hospitals and clinics to research facilities, attackers have been focusing on the health-care industry since the beginning of the Covid pandemic, seeking financial gain
($202bn) equates to roughly 2.5% of the value lost ($8trillion) due to cybercrime. There is certainly scope for growth in spending.
However, one of the biggest stumbling blocks standing in the way of containing cybercrimes is the dearth of cybersecurity experts. According to (ISC)2 with its 330,000 members one of the world’s largest industry organisations for information security professionals the shortfall in cybersecurity workforce gap reached 3.4-million people last year.
Thus, being an industry that relies on people’s creativity and intuition and having a multimillion shortfall, the cybersecurity industry has a natural moat surrounding it: the likelihood of fierce competition is diminished as there aren’t enough skilled people to do the jobs.
So where does this leave investors shaken by the slump in tech stocks across the world and by the run on, and collapse of, tech lender Silicon Valley Bank?
When considering companies operating in the cybersecurity space, it is prudent to remind oneself that tech companies tend to be “hopes and dreams” stocks the hopes and dreams that these stocks will turn out to be the next Microsoft or
Apple.
An issue that arises time and again with tech stocks, especially when the price of money (interest rates) increases, is how these companies are valued. Discounted future cash flow predictions are the usual measure of valuating a company. But in the absence of cash flow, valuations tend to become pinned on “hope”.
There are, fortunately, after 20 years of a rising digital economy, enough businesses that sell services such as the combating of cybercriminals and products that generate a cash flow in some instances a rich cash flow.
CrowdStrike, listed on the Nasdaq, has been benefiting from increased global spending on cybersecurity. The company, which among other things sells services to protect endpoint customers, such as dealing with the use of USBs in company computers by employees, had ex-revenue jump 48% to $2.24bn in the year ended January 31. Of this, subscription sales totalled $2.11bn or 55% more than the previous year.
Though CrowdStrike clocked up a loss of $182.3m, the company’s cash flow from operating activities jumped 63% (more than revenue) to $941m. Cash used in investing activities declined to $556m from $564m a year earlier. This left the company with a healthy cash pile of $2.7bn and debt of $750m. At the end of January, the company’s cash per share stood at $11.47, with a cash-to-price ratio of 8.9% on March 15.
What makes the outlook for CrowdStrike an attractive longer-term buy, in addition to being at the forefront of tackling cybercrime, is its partnership with computer hardware manufacturer Dell. Dell customers, traditionally large corporates, will now have the option to add CrowdStrike’s cybersecurity services at the time of purchase.
Fortinet is a stalwart in cybersecurity solutions, having been founded in 2000. The company sells cybersecurity services and manufactures security processing units for customers opting for hardware threat protection.
For the year ended December 31, Fortinet reported revenue of $4.4bn a 32% jump from a year earlier.
In 2022, overall global cyberattacks increased by 38% above the 2021 figure