Cybercrime is a serious problem that is projected to hit companies and governments around the globe with an estimated $10.5 trillion in damages by 2025, according to Cybersecurity Ventures. In an effort to combat this assault on user’ online activity, which goes after everything from server breaches to identity theft, cybersecurity companies are continually releasing new tools and updates. Their services are in high demand.
All this creates a massive opportunity that is forecast to be worth an estimated $256 billion by 2028, up from $162 billion this year. Two companies in a great position to benefit from this growing opportunity are CrowdStrike Holdings (CRWD 0.73%) and Fortinet (FTNT -0.20%). Here’s why.
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1. CrowdStrike
CrowdStrike offers a variety of cloud-based cybersecurity services which integrate artificial intelligence to protect their clients and customers from online threats. The company’s share price fell hard along with other tech stocks over the past year, but if you look back over the past three years, CrowdStrike’s stock gains more than double the S&P 500‘s comparable returns.
Why such impressive gains? Part of the reason is CrowdStrike continues to prove it can grow its business, even in an increasingly crowded cybersecurity market. For the full fiscal 2023 year, CrowdStrike’s revenue soared 54% to $2.2 billion and the company enjoyed strong subscription gross margins of 76% for the year. Its net cash generated from operations was $941 million for the year, up from $575 million in 2022.
These figures look even more impressive when you consider that the company operates in what its CEO says is a “challenging macro environment.” Despite the difficulties, CrowdStrike set a record for net new customers of 1,873 in fiscal 2023’s fourth quarter (ended Jan. 31).
Tech investors are particularly interested to see if a company is in a strong financial position right now, and CrowdStrike ticks that box as well. The company ended fiscal 2023 with just $741 million in long-term debt and had $2.7 billion in cash.
And even with the uncertainty in the economy right now, CrowdStrike’s management is still guiding for about $3 billion in revenue for the current fiscal year, an increase of about 34% from fiscal 2023.
2. Fortinet
Fortinet is a well-known cybersecurity company that offers a wide range of products and services, including everything from subscription anti-virus software to firewalls. Like CrowdStrike, Fortinet is seeing exceptional growth right now compared to most tech companies.
Fortinet’s sales rose 32% in 2022, reaching $4.2 billion, thanks to the company’s service revenue increasing 26% and product revenue jumping 42%.
Part of the company’s competitive advantage comes from its large firewall business. The latest IDC data shows Fortinet in the No. 1 position for firewall shipments. Fortinet CFO Keith Jensen said in the latest earnings call that the company’s current economies of scale make it difficult for competitors to catch up, because of the “high entry barrier and significant investment that is required” to develop similar firewall technology.
In addition to the company’s strong position in the cybersecurity market, management expects more growth this year, with sales estimated to climb 22% to about $5.4 billion. And Fortinet’s management believes that it is “well positioned to achieve” its target of $8 billion in revenue for the 2025 year.
Take the long view
The market is volatile right now, and cybersecurity stocks aren’t immune. But investors who buy CrowdStrike and Fortinet — and hold on to them for a decade or so — have a good chance of outpacing the broader market’s returns as these companies grow.
Just remember to run each company through its paces as you build an investment thesis for each stock, and be patient when the companies experience some share price swings along the way.
This content was originally published here.
