Google Bets Billions On Cybersecurity

Alphabet (GOOG), the parent company that owns Google, acquires a lot of smaller companies. Since the beginning of 2020, it has acquired more than a dozen tech companies, including Fitbit, Actifio, and Neverware. Alphabet recently made headlines for spending $5.4 billion to buy Mandiant. 

$5.4 billion is a lot of money, even for one of the world’s largest and most valuable companies. In fact, it’s the second-larger acquisition in Alphabet’s history. So, why did Alphabet buy Mandiant, and why did it commit so much money to the acquisition?

What Does Mandiant Do?

Mandiant is a cybersecurity company that employs more than 300 security researchers and intelligence analysts. Mandiant’s products and services include:

• Advantage Platform — a cybersecurity platform that offers several automated features for threat detection and security validation.
• Managed Defense — A bespoke threat monitoring and security response service that connects Mandiant experts with smaller security teams.
• Consulting Services — A broad range of services that include security training and threat evaluation.

The average person may not have heard of Maniant, but it stands out as an extremely successful cybersecurity company with worldwide clients.

Mandiant, which formerly operated under the name FireEye, works with several agencies within the United States federal government.

In 2020, the company worked with the Federal Bureau of Investigation (FBI) to defend agencies from a coordinated attack likely seeking information about government customers. Microsoft also helped in the effort.

Unverified rumors say that Microsoft recently expressed interest in acquiring Mandiant but decided not to follow through with the plans, leaving the company open to Google’s offer.

Mandiant Will Make Google Cloud More Competitive

Mandiant’s technology will give Alphabet’s other companies the tools they need to improve security. More specifically, though, Mandiant’s technology will make Google Cloud a more enticing option for corporate clients looking for secure hosting services.

Google Cloud Platform has lagged behind the industry’s top providers, Amazon Web Services (AWS) and Microsoft Azure. Acquiring Mandiant should make Google Cloud more appealing to clients that understand the growing need for cloud services but are also concerned about potential security issues that could make them targets. 

Interest in cloud-based technologies has grown rapidly during the COVID-19 pandemic. When companies shifted to remote work, they relied on cloud services to keep employees connected. The cloud has also become increasingly important to companies that offer “as a service” products, including Software as a Service (SaaS) and Infrastructure as a Service (SIaaS).

In a recent interview, Alphabet CFO Ruth Porat justified the Mandiant acquisition by saying, “The way we look at it (investments) is we’re obviously not competing with our peers at the scale they were then, we are competing at the scale they are now in a market that is accelerating.” In other words, Google has been able to keep up with other cloud service providers, and it sees Mandiant as a step toward becoming a more competitive option.

In January, Alphabet announced the acquisition of Israeli cybersecurity company Siemplify for half a billion dollars. Siemplify’s technology is also being applied to the Google Cloud Platform.

Does Alphabet’s Mandiant Acquisition Make Sense?

Cybersecurity is a growing segment within the tech industry. Hackers successfully completed more data breaches in 2021 than any previous year. To make matters worse, criminals were able to focus on high-value data, such as credit card numbers and Social Security numbers. 

Malware is also a persistent nuisance that helps criminals steal information, force networks to perform work for them, and lock organizations out of their computer systems. The former type of malware, called ransomware, often targets governments and healthcare centers, including hospitals and medical offices. A recent ransomware attack locked the computers of a biotechnology company researching medical treatments.

Ransomware attacks frequently lead to pay-offs for criminals because the organizations cannot perform their essential services without access to files. A hospital that cannot access patient files can barely function, let alone give its patients life-saving services. 

If Alphabet can show that Mandiant’s technology makes Google Cloud a safer alternative to AWS, Azure, and other cloud providers, the $5.4-billion gamble could work in Alphabet’s favor.

Google Cloud doesn’t necessarily need to become the top cloud services provider in the world to get a solid return on its investment. It just needs to attract more clients willing to pay a premium for excellent security. These clients could include government agencies and medical facilities that would rather spend more money on security than pay ransoms to hackers.

Stock Market Reaction to Alphabet’s Acquisition

Investors seem to have liked Alphabet’s decision to purchase Mandiant, even at such a high price.

The day before Alphabet made its acquisition public, shares were trading for about $2,528. On the day of the announcement, shares lifted slightly to $2,542.

The following day, however, the price jumped to $2,668. That’s not a huge increase by percentage, but it is a decent amount of money and likely shows that stockholders believe Alphabet made a wise decision.

It Will Take Time for the Acquisition to Pay for Itself

Alphabet seems to believe that the costly acquisition will pay for itself by attracting more cloud clients. It will probably take years, though, before the conglomerate starts to see a return on its investment. 

Keep a close eye on Google Cloud’s position in the market. If it starts to improve, Alphabet stock could move up with it.

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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.