CrowdStrike Holdings Inc (NASDAQ:CRWD)
CrowdStrike Holdings is an American cybersecurity company that specializes in cloud-delivered endpoint and workload protection. The company’s main product is called Falcon, which delivered a range of cybersecurity services, including:
- Ransomware and malware detection
- Real-time endpoint protection
- Incident response
- Threat intelligence
CrowdStrike offers its services around the world, with clients in over 170 countries worldwide. CrowdStrike has become a major player in the cybersecurity industry over the years - uncovering some high-profile attacks, such as the DNC hack of 2016, and the SolarWinds cyber attack in 2020.
"The great thing about our Falcon platform is that we cater to the largest enterprise all the way down to the smallest SMB businesses and because it's a SAS service it's the same technology and it protects the largest organizations to the smallest little companies"- George Kurtz
CrowdStrike has a strong, well-established customer base and a variety of cybersecurity services, which include threat detection, machine learning, and rapid incident response.
CrowdStrikes’ 4Q earnings report from the fiscal year 2023 highlights some important milestones from the quarter:
- Quarterly revenue reached $389.6 million - up 65% YoY
- Net income of $46.6 million and EPS of 0.19 - beating analyst expectations
- The subscriber base grew to 15,700 - an 82% increase YoY
- A new office in Japan, as part of CrowdStrike’s expansion in the Asia-Pacific region
- New threat intelligence offering called CrowdStrike Spotlight, with integration into Amazon Web Services
- Total revenue for the fiscal year is expected to fall within the $1.71 - $1.75 billion range
In terms of stock performance, CrowdStrike has had a difficult time throughout 2022. The bear market caused a mass sell-off in the stock market, which more than halved CrowdStrike’s market capitalization. However, the start of 2023 marked a turnaround, as the Federal Reserve started to ease interest rate hikes and the market began a rebound.
Fortinet Inc (NASDAQ:FTNT)
Fortinet is a multinational cybersecurity company that offers its services to organizations of various sizes and profiles. Fortinet’s main service is the FortiGate platform, which offers firewall and VPN solutions, such as cloud security, endpoint security, and intrusion prevention.
Fortinet’s Security Fabric architecture allows the company to integrate its products with other third-party software to help manage its security infrastructure.
Fortinet has customers in over 190 countries worldwide, which includes companies from the healthcare, finance, and education industries, as well as government agencies.
"So that's making security always keep working faster than the network in the IT spending and the security becomes the biggest sector in the IT spending environment"- Ken Xie
Fortinet’s Q4 results highlight some important operational results from 2022, including:
- $1.17 billion in quarterly revenue - a 16% increase YoY
- $256.6 million in net income, with EPS reaching 1.79
- Strong demand for the FortiGate and FortiAnalyzer solutions
- Launch of FortiEDR Cloud and FortiCWP Cloud solutions
Fortinet has returned more than $2 billion to shareholders via share repurchases over the past year. With a diversified business model, Fortinet is projected to reach a 22% compound annual growth rate over the next three years. Its diverse suite of security solutions and threat-detection capabilities make Fortinet one of the most exciting cybersecurity stocks to watch in the coming years.
Fortinet’s stock has been quite volatile over the past year, with frequent dramatic swings in either direction. While this volatility might deter some investors from buying the stock, it also means that patient investors can wait for the stock to drop and buy at a more favorable price. The stock has gained roughly 4.5% in market value year-to-date, but could drop lower in 2023 - opening new opportunities for investors to buy up the stock.
Okta Inc (NASDAQ:OKTA)
Okta is a cloud-based identity and access management company that works with a wide range of organizations to help securely manage access to their data, applications, and other critical information.
Okta’s subscription-based software-as-a-service (SaaS) model provides subscription plans for IAM solutions, support, and maintenance.
Okta also offers a range of other cybersecurity services, such as:
- Adaptive multi-factor authentication, which provides an additional layer of security beyond passwords, such as biometric authentication and device information to verify user identity
- Universal directory, which helps organizations manage access policies and user identity across the entire organizational framework
- API access management, which provides secure access control and authorization for APIs
- Customer identity and access management (CIAM), which is tailored for organizations that need to manage customer identities and access to their services
While Okta remains unprofitable, the Q4 2023 report did highlight some operational milestones reached by the company during the quarter:
- Quarterly revenues increased by over 33% YoY - reaching $510 million
- Net loss narrowed by 36.5% to $153 million
- Change in net cash increased by 110% to $11.6 million
Some investors may be reluctant to buy Okta stock at current valuations, given that the company is still operating at substantial losses. However, the bottom line shows signs of improvement, as Okta has managed to narrow its loss by over 35% this quarter.
"Okta as an identity company, we sit between employees and customers and all the digital technology they use at work or in their personal lives, so we gather unique insight about who's using what and what trends are shaping the technology industry" - Todd McKinnon
This unprofitability makes Okta a volatile stock in the short term. As the company’s stock performance over the past 12 months has shown, Okta is somewhat overvalued. If Okta drops lower in 2023, this could be a good time for investors to buy the stock and hold it in long-term portfolios.
Global X Cybersecurity ETF (NASDAQ:BUG)
Global X Cybersecurity ETF is an exchange-traded fund issued by Mirae Asset Global Investments Co. Ltd that invests in a broad range of cybersecurity companies from developed markets around the world. The ETF has a 0.50% expense ratio and over $700 million in assets under management.
Some of BUG’s largest holdings include:
- Fortinet Inc (FTNT) - 7.39% of total holdings
- Okta Inc, Class A (OKTA) - 7.18% of total holdings
- Palo Alto Networks Inc (PANW) - 7.03% of total holdings
- Rapid7 Inc (RPD) - 6.91% of total holdings
- Varonis Systems Inc (VRNS) - 6.72% of total holdings
- Check Point Software Technologies Ltd (CHKP) - 5.71% of total holdings
- Tenable Holdings Inc (TENB) - 5.20% of total holdings
- Zscaler Inc (ZS) - 5.06% of total holdings
- CrowdStrike Holdings Inc, Class A (CRWD) - 4.96% of total holdings
- Gen Digital Inc (GEN) - 4.85% of total holdings
The ETF is primarily invested in Nasdaq-listed cybersecurity stocks and presents a diversified opportunity for investors to gain exposure to the cybersecurity industry without committing their funds to any single stock. The ETF is a great indicator of the overall trends present in the cybersecurity market and a convenient way to diversify otherwise conservative portfolios.
2022 was a difficult year for most high-growth industries and cybersecurity was no different. BUG has lost around 25% In market value over the past 12 months and still remains relatively affordable for new cybersecurity bulls to enter the market and invest in the fund.
Zscaler Inc (NASDAQ:ZS)
Zscaler is a cloud-based cybersecurity company that protects users and their data from viruses, malware, and phishing attacks. Some of Zscaler’s services include firewalls, cloud sandboxing, secure web gateways, data loss prevention, and cloud access security broker solutions.
Zscaler offers its solutions through subscription-based software-as-a-service, which customers pay for on a monthly, or annual basis. Since Zscaler’s services are delivered through a global cloud infrastructure, clients can access it from anywhere in the world.
Zscaler’s customers include government agencies, small and medium-sized enterprises, etc.
Zscaler’s latest quarterly report released in January has shown some major improvements in the company’s bottom line, including:
- 51.6% increase in quarterly revenue - reaching $387.6 million
- Net loss of $57.45 million - a 42.8% drop in losses YoY
- 62.8% increase in profit margins
Zscaler is a company that still operates at a loss. This is one of the reasons behind the high degree of volatility experienced by the stock over the past 12 months. Zscaler’s stock has lost over 45% over the same period. The high-interest rates and a slowing economy could dip the stock even lower in 2023, which could be a welcome opportunity for new investors with above-average risk tolerance. While investing in unprofitable stocks always carries an outsized risk, Zscaler is a growing company with plenty of long-term potentials, which should be appealing to many investors.
"All bad things come from the internet, all good things leave to the internet. So we are the checkpost to make sure the right party talks to the right party from a cyber point of view " - Jay Chaudhry
Palantir Technologies Inc (NYSE:PLTR)
Palantir is one of the largest and most well-known cybersecurity companies in the world, which provides a broad range of software and data analytics solutions to its clients.
Palantir primarily sells its services to large enterprises. Palantir’s flagship product, the Palantir Gotham software platform, enables users to analyze and visualize large amounts of data from a variety of sources, while also providing tools for data integration, management, and analytics.
Palantir has long-term contracts with its relatively small customer base, which includes government agencies and large businesses. Recently, Palantir has been actively seeking new partnerships with other technology companies to expand its offerings to include more security services for commercial use.
Palantir Technologies’ earnings report from Q4 2022 shows some highlights of the company’s operational side:
- Quarterly revenue increased to $583 million - up by 34% YoY
- Net income of $90 million, as opposed to a net loss in the comparable quarter from 2021
- Revenue per customer grew by 19% YoY
- Higher growth in the commercial business side of things, as opposed to the government contracts in Q4
- Announced a new software platform called Palantir Foundry Enterprise, which is designed to help customers design and deploy data-driven applications faster.
Palntir’s stock has also been subject to high volatility in 2022. The stock has lost 35% of its market value over the past 12 months and now trades below the $8 mark. Considering the high amount of traction Palantir attracts from the investing community, lower valuations represent attractive buying opportunities for investors with an appetite for risk.
"You want to be in an environment where your values win, and you know how you can do that, you build a software company and you get people like in this room to implement the software, and you say, "hey, I know I'm not likable, but the software is going to bring you alive home", and your values are going to win" - Alex Karp
