There are over 100,000 malicious websites and 10,000 malicious files uploaded to the internet daily, and nearly 80 percent of security incidents reported are phishing attacks.
Of course, there’s a plethora of attack types, and they’re increasing in both frequency and sophistication. Artificial intelligence, distributed denial of service (DDoS), and ransomware are among the most expensive and prohibitively dangerous attacks.
Cybercrime is estimated to rise to $6 trillion in damages this year, with Gartner reporting $170.4 billion spent in the next year on information security. This makes cybersecurity a lucrative industry for investors, so what are the best cybersecurity stocks to buy?
Crowdstrike Has Over 10,000 Subscribers
Crowdstrike Holdings Inc (NASDAQ:CRWD) is a Sunnyvale, California-based cybersecurity company that provides cloud workload, endpoint security, threat intelligence, and cyberattack response services. It’s one of the leading providers of such services and received a big boon from the SolarWinds (NYSE:SWI) attack.
That’s one of the biggest things to understand about this industry – cyber attacks constantly happen, and the outcomes for winners and losers are highly skewed. The companies breached lose a lot of trust and often get fined, while the companies unscathed get a boost in customers.
Since going public in a June 2019 IPO, Crowdstrike has nearly quadrupled its market capitalization to become a $50 billion company. It got there by increasing its fiscal year 2021 revenue year-over-year by 82 percent to $874.4 million.
Not only that, but the company forecasts its revenue to increase to $1.3 billion over the next fiscal year.
Crowdstrike is growing its international revenue streams too, enabling it to take a larger share of this growing market. Its subscription base grew 82 percent in 2021, giving it about 10,000 customers at the start of the year.
Despite its fast growing revenue, the company still hasn’t turned a profit. It’s getting closer though, with a net loss of -$92.6 million in FY 2021 versus FY 2020’s -$141.8 million loss. This is attributed to the company spending heavily on its growth strategy. It’s not uncommon for a business to lose money in its early years of business.
So long as it continues its growth pattern without suffering any major security incident that puts it in the media spotlight, Crowdstrike should perform well. It has the confidence of many in both Silicon Valley and Wall Street, and that’s a key ingredient to continuing to perform well as a growth investment.
However, it’s not the only cybersecurity firm in town.
Fortinet Is No Legacy Cybersecurity Company
Fortinet Inc (NASDAQ:FTNT) is another Sunnyvale, California-based cybersecurity company that focuses on anti-virus, intrusion prevention, and endpoint security components among other things. Its Security Fabric architecture is among the industry standards for integrating and automating network security devices and third-party vendors.
Fortinet enjoyed rapid growth in its market capitalization in 2021; it doubled within the first half of the year. And it’s still outpacing the industry average in the back half of the fiscal year, leading many analysts to buzz about its future prospects.
The company is often discussed as a “legacy” cybersecurity company, but that’s a misnomer. It’s more like a foundational company that provides the basics necessary at the device level to ensure a cloud-based approach will work.
And by devices, we don’t just mean smartphones and laptops – the company makes best-in-class security chips for servers and hyperscale datacenters. That makes them integral in the devices used in the cloud-based infrastructure we’re all relying on at this point.
This is how the company’s revenue increase of 17 percent from 2020 is around 70% higher than the anticipated 10-percent industry growth expected. Not only is the company highly profitable, but it has a free cash flow profit margin of 35 percent.
Fortinet started 2021 with $1.84 billion in cash and short-term investments with no debt on its books. That means everything from here will go back into the company and its investors, and that makes this company a worthwhile bet for those believing it could be worth $50 billion or more in the near future.
And it’s not alone in its quest.
Palo Alto Networks Still Growing 24% Per Year
Palo Alto Networks Inc (NYSE:PANW) is a Santa Clara, California-based cybersecurity company. Its core platform includes advanced firewalls and cloud-based security, and it exceeded earnings expectations during a rocky start to 2021.
The company brought in $1.07 billion in revenue (or about $1.38 EPS) during its most recent quarterly report. That amounts to 24 percent year-over-year growth, which is similar to the previous quarter’s 25 percent growth.
Its products are often priced much higher than the competition, and the company says it’s because it offers much more advanced protection. The company’s artificial intelligence and cloud security segments are among its more profitable, but it refuses to spin them off.
Rival Crowdstrike has a much larger salesforce, and that means Palo Alto has to rely more on its reputation. It spent $156 million buying cloud security company Bridgecrew in the first half of the year and expects to end its fiscal year at around $1.17 billion in revenues ($1.43 EPS). Once the company finalizes the acquisition integration, it’s likely to draw even bigger interest as year over year comps look stellar.
Private Equity Eyes Up FireEye
FireEye Inc (NASDAQ:FEYE) is a Milipitas, California-based cybersecurity company involved in the detection and prevention of attacks. It analyzes enterprise security risks to determine the best way to proactively defend against breaches while also investigating any potential breaches.
The company announced in June 2021 that it’s selling the FireEye brand name and products business to a private equity firm called Symphony Technology Group (STG) for $1.2 billion in cash. This transaction is expected to be completed by the end of the year.
This would focus the company more on information security as a service business, with threat detection and forensics playing key roles. It also offers IT security consulting and preparedness assessments. This seems the more profitable revenue stream.
It’s unclear if the company can maintain a $5 billion market valuation without its products.
Cloudflare Offers DDoS Services & More
Cloudflare Inc (NYSE:NET) is a San Francisco, California-based web infrastructure and website security company. It protects against spam comments, malicious content, and DDoS while also offering content delivery network services and distributed domain name server services.
This makes it an integral part of the web-based economy, although you wouldn’t know it from its stunted growth relative to the competition. Edge computing is the next generation, and tech giants like Amazon (AMZN), Alphabet (GOOG), and Microsoft (MSFT) are involved as the market grows to hundreds of billions in annual revenue.
That helped fuel over $612 million in annual revenue, according to the company’s 2021 guidance. It’s helping decentralize the internet, something blockchain and security professional may agree on. And that means this $30 billion company may one day be as big as the giants mentioned above.
Still, there’s plenty of competition from companies like Fastly (FSLY). If these companies execute on their roadmaps, however, investors should be pleasantly satisfied with the results.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.