Since the onset of COVID-19, there has been a significant shift to digital leading to an increase in cybersecurity attacks. With the cost of cyberattacks forecast to cost $10.5 trillion annually by 2025, there is an ever-increasing need for these companies’ solutions. We examine three cybersecurity to buy now that are benefitting from this secular tailwind.
Crowdstrike: Bull vs Bear arguments:
CrowdStrike (NYSE: CRWD) is a cybersecurity company that provides endpoint security, threat intelligence, and attack response services. The company was co-founded in 2011 and went public in 2019. It remains founder-led, with two of the three founding members working as the CEO and Chief Technology Officer.
It estimates that its total addressable market stands at $36 billion today and is expanding at a 9% compound annual growth rate (CAGR).
In Q1, 2022, CrowdStrike reported revenue growth of 70% year-over-year (YoY) to $302.8 million with a gross margin of 77%. Subscription revenue accounted for 93% of total revenue leading to revenue visibility, with annual recurring revenue reaching $1.19 billion equating to a 74% jump YoY.
CrowdStrike continues to be a trusted leader in the space and has gained recognition from research firm Gartner. This strong recognition has translated into customer growth, adding 1,524 new customers representing a growth of 69% YoY and bringing the total to 11,420 subscription customers. Furthermore, it continues to monetize its customers with a dollar-based net retention rate that exceeded 120%.
CrowdStrike also continues to grow and deepen its partnerships with companies such as Zscaler and Google Cloud. These partnerships have also helped to gain new customers, which is critical as the company grows.
CrowdStrike is operating at a loss which expanded to $85 million in Q1 primarily due to costs associated with its latest acquisition. It is also trading at a steep valuation of roughly 54x price to sales which may be a concern.
Okta: Bull vs Bear arguments:
Okta (NASDAQ: OKTA) operates cloud-based software to enable companies to manage and secure user authentication across an organization’s apps and devices. The company was co-founded in 2009 by CEO Todd McKinnon and COO Frederic Kerrest and is headquartered in San Francisco, California.
For the fourth consecutive year, Okta has been named a leader in Gartner’s magic quadrant for Access Management Providers. Okta believes that its market opportunity is approximately $80 billion leaving a significant runway for growth.
In fiscal Q1 2022, revenue increased by 37% YoY to $251 million, with subscription revenue accounting for 95% of it. In addition, it has a gross margin of 73%. It has also expanded its customer base, adding a record 650 customers in Q1, bringing the total to over 10,650. This includes high-profile customers such as Twilio, Nordstrom, and JetBlue. The company’s dollar-based net retention rate also remained strong at 120’%, demonstrating its stickiness and ability to upsell.
The most considerable risk to Okta is the threat from tech giants such as Microsoft and Amazon that have much greater resources. Both these companies operate solutions that are competing directly with Okta. It is also unprofitable, with a net loss that expanded YoY to $109 million.
Zscaler: Bull vs Bear arguments:
Zscaler (NASDAQ: ZS) is a cloud-based information security platform founded in 2007 and headquartered in San Jose, California. It went public in 2018 and has been named by Gartner as the only leader in secure web gateways. The company handles over 160 billion daily requests across its 150 data centers preventing 7 billion incidents and policy violations daily.
Zscaler is founder-led with co-founder Jay Chaudhury working as the CEO and owns a large stake in the business. The company has an impressive 4.6 out of 5 stars on Glassdoor, and Chaudhury has a 98% approval rating which is highly positive.
Zscaler is “firing on all cylinders” as it continues to tap into what it believes is a total addressable market in the region of $72 billion. In Q3 2021, reported revenue growth of 60% YoY with high gross margins of 81%. Zscaler has over 5,000 customers, including 25% of the Global 2000 and an impressive net promoter score of 76. It also has a strong ability to upsell with a 126% dollar-based retention rate.
The company is operating at a loss on a net income basis which expanded significantly from $19.3 million a year before $58.5 million in Q3, 2021. The stock has also doubled in the last year and is trading at a pricey valuation of 54x sales, leaving little room for error. There is also growing competition from players such as Cloudflare, Palo Alto Networks, and more.
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Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.