Cybersecurity stocks outperform the market in a volatile economy

The CrowdStrike IPO floated on the Nasdaq on June 12, 2019.

Source: Nasdaq

Economic concerns were a major topic across the tech industry during the second-quarter earnings season, as companies warned of slowing spending on advertising, gadgets, e-commerce and software.

But with rising interest rates and Inflation has stalled near its highest level in 40 yearsHowever, there is still a growing demand for a part of the technology sector: cybersecurity.

Earnings reports this week from CrowdStrike And the guard one Wall Street was pleasantly surprised, and the two companies, which specialize in protecting the numerous devices connected to corporate networks, have boosted their expectations for this year.

“Cyber ​​security is not a discretionary component,” CrowdStrike CEO George Kurtz said on his company’s earnings call.

Investors heard a similar comment last week from Palo Alto Networks, which posted a profit for the first time in a decade. The data center security company’s stock is up 12%, its best performance since its IPO in 2012.

And two weeks ago, Cisco She said her security work grow faster than all other sectors, exceeding analyst estimates by nearly $100 million. Security is now Cisco’s most important investment area, CEO Chuck Robbins told analysts on a conference call, and the company is raising prices to counter the rising costs of the components it needs to assemble the hardware.

Across the security landscape, vendors are busy providing tools to large companies that are concerned about vulnerabilities that have emerged due to remote working, the hybrid phenomenon, and the increase in cyberattacks being introduced during Russia’s war in Ukraine.

“In transformational projects, the vast majority of our clients continue to invest here, despite the overall impacts expected in the short term,” said Nikesh Arora, CEO of Palo Alto Networks, on the call with the analysts. “Security spending is linked to our customers’ desires to move to the cloud, drive more direct relationships with their customers, modernize their IT infrastructure, as well as increase efficiency as they adapt to a new way of working. These efforts continue.”

Investors didn’t make money from the security bet this year, but they lost less than if they bet in the broader tech market.

ETFs focused on the internet from First Trust Nasdaq and Global X (the ticker symbol BUG) are down 22% and 19% respectively in 2022. The Nasdaq is down 25% for the year.

Cyber ​​Stock vs Nasdaq


Inside software, security service providers show the advantage they have during a period of economic turmoil. Customers cannot reduce their spending due to the myriad of threats they face and the risks to their business if they are subjected to a massive ransomware attack. So they are looking elsewhere.

Last week, cloud software maker sales force He trimmed his guidance for the fiscal year and said clients did. become more intentional about purchases. The stock fell 11% over the next three trading sessions. shares Zoom I also stumbled after a video calling software company lowered her expectations for a whole year.

Elsewhere in technology, ad-supported companies like Explode, Explode And the Facebook I got Hitwhile online trading companies Shopify And the Confirms Warn back to Spending Patterns Before Covid. until apple iPhone brand CEO Tim Cook said be seen “Soft pockets” as fears of an economic slowdown seep in.

“I don’t know anyone uses the word slack,” said Gary Steele, CEO of Splink, whose software helps companies analyze data to monitor performance and identify threats, said in an interview this week. “I think we’ve seen macro conditions where budgets seemed to shrink, which meant they had to decide when they wanted something to happen.”

Watch Jim Cramer's full interview with Splunk CEO Gary Steele

Second Quarter he won CrowdStrike’s was up 58% from a year earlier as the company recorded more than 1,700 subscribed customers, more than in any previous quarter. Bert Bodbeer, CrowdStrike’s chief financial officer, said the company has “strong industrial winds”.

Kurtz told analysts that it takes longer to make some deals because customers are forced to obtain higher levels of required approvals before buying. But it still happens. Jefferies was one of several banks that raised their price target on CrowdStrike, and analysts at the company said the company should be reasonably protected in a downturn.

guard one CEO Tomer Weingarten described his company’s record gross profit margin and customer retention rate.

“Cybersecurity remains a top priority for corporate IT spending, and is a must for all businesses,” he said.

Arora of Palo Alto said clients signed long-term deals during the quarter. This is in line with comment from Guggenheim analysts, who wrote in a note to clients that security spending among the companies they cover has not eased as much as IT spending.

Not all companies in the space see a big bang.

octa Shares tumbled 33% Thursday, after the secure login software provider cited a “weak economy” and said it was struggling to integrate salespeople from Auth0, which acquired last year $6.5 billion.

“Integrations are always tough and touch every part of the organization,” CEO Todd McKinnon said on the earnings call. “As we make progress, we have seen increased attrition within the go-to market organization, as well as some confusion in the field, both of which have affected our business momentum.”

Watch: Security and data are strong trends in small cloud businesses, says Sanjay Punin, CEO of Cohesity

Security and data are strong trends in small cloud businesses, says Sanjay Punin, CEO of Cohesity

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