The battle against cyber provides great opportunity for investors.
Cyber: it’s the great new opportunity for criminals; investors can take a stake in fighting it
Recently, the Bank of England Governor, Mark Carney, cited cyber as one of the four big threats to the economy. Its threat grows, but fighting against it is becoming big business. Some massive companies will emerge in this field.
If only we had bought into Amazon, or Apple, 15 years or so ago. If only we knew who the corporate stars of tomorrow will be. Well, I can tell you which sector will spawn many of the mightiest companies a few years hence — cyber crime is emerging as the new big threat to business, the economy, even to our way of life — and fighting it is to become big business.
These days, phishing is number one. Phishing is where you receive an email asking you to do something. You will, I am sure, recall those emails from some alleged senior Nigerian politician or a prince, wanting to share his fortune with you, once you transfer some money to his account. Well, phishing is like that, but has become an order of magnitude more sophisticated.
A common form is known as CEO fraud — in which a reasonably junior member of staff receives an email, apparently from the CEO, requesting that the email’s recipient transfers some money or sends sensitive information.
The most dangerous form of phishing is known as spear phishing — the message is carefully targeted, senders do their research about you, they know your likes and hobbies. It can also come with a threat — a stroppy CEO threatening to fire you if you don’t comply, for example.
Some of these emails can be very clever — and they can panic people, making them think irrationally.
According to one report, cyber crime may have cost the global economy $600 billion last year, another report predicts that cyber crime will cost $6 trillion annually by 2021 and will be more profitable than the global trade in illegal drugs combined.
Before I talk about the opportunity for investors, let me say one more thing about the criminals — it’s low risk. It’s not like robbing a bank the old fashioned way — the threat of being caught ever present. These days some cyber criminals are almost impossible to spot — and where convictions do occur, they often lie with more traditional activities — such as spending an unusually large amount of money in Harrods.
Cyber crime is one of the biggest down sides to the fourth industrial revolution, indeed it may cancel out much of the benefits.
And for people who want a career on the right side of the law, cyber crime is one of the most promising careers to get into.
Companies worth looking at include:
- Sophos; listed in the UK, shares up two and half fold over the last five years, market cap £2 billion. But the company’s latest results disappointed the markets, with a reduction in the net renewal rate. It has forecast $1billion annual billings by 2020.
- Mimecast; UK based and listed on the NASDAQ, shares up four fold since 2016, market cap $2.5 billion. Revenue was up by 35 per cent in the latest period.
- Splunk; NASDAQ listed, shares up a quarter since 2015, market cap $17 billion.
- Check Point Software Technologies; NASDAQ listed, share price up by a half since 2014, market cap $19 billion. P/E ratio 23.5.
- LogMeln; NASDAQ listed, shares up two and a half fold since 2014, market cap $4.54 billion. P/E 91.
- FireEye; NASDAQ listed, shares down by more than a half since 2014, market cap $3.36 billion.
- CyberArk Software; NASDAQ listed, shares up two and half fold since 2014, although only just returning to the 2015 peak, market cap $2.6 billion. P/E 100.
- Rapid7; NASDAQ listed, shares up 50 per cent since the 2015 float, market cap $1.7 billion.
I confess, the share price performance pertaining to these companies does not excite me overly. Indeed many, especially the larger ones, have seen shares fall in the last year.
I would say as follows: my crystal ball says the next few years will see a corporate titan emerge from cyber security — unless it gets bought by someone else such as Amazon or Alphabet first.
Picking the eventual winners is not easy — which is why it would be a mistake to put your money into one cyber security company — invest in several.
It may well be that the future stars are not yet listed.
So investors need to watch closely, study the form, but keep some powder dry, ready to swoop when the next, potentially all conquering super star in this field emerges.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees