As we have discussed in several of our previous investor letters, our goal in the Innovative Growth Portfolio Strategy is to identify the areas of the economy and markets most ripe for innovation and investment, identify the companies positioned to benefit from the growth, and to have the patience to own them over the long-term.
The reality of markets is that not all companies are positioned in areas of fast growth and not all companies within an area of fast growth will prosper, so equal in importance through our process is to both research the trends taking place within the economy as well as the company positioning within those trends. The net result of this process is a portfolio strategy focused within a few areas including:
- Financial Technology (FinTech)
- Big Data & Cloud Computing
- Internet of Things (IoT)
- Artificial Intelligence
- Cyber Security
As more companies have come public in the space, and the need for products grows by the day, we performed a deep-dive on Cyber Security in the quarter to identify additional companies to add to your portfolios. While we don’t report specific buys and sells in these letters, we wanted to share some of the insights from our research in this quarter’s letter.
Just how big is the need for Cyber Security?
- The cybersecurity market will grow 11% in 2021 to $73.54 billion, estimates research firm Gartner.
- Among Chief Security Officers surveyed, 92% cited a heightened cyber threat environment as a primary reason for accelerating security spend in 2021, suggesting that recent cyberattacks are starting to impact enterprise budget decisions (Morgan Stanley)
- According to Cybercrime Magazine, the global cybercrime cost is expected to reach $10.5 trillion annually by 2025.
- The cybersecurity market is expected to be valued at $403 billion by 2027, growing at a compound growth rate of 12.5% (CEPro)
- The U.S. is one of the countries most vulnerable to cybercrimes, with 18.2% of all ransomware attacks taking place in the country
What are the different areas within Cyber Security?
Cybersecurity is a relatively wide industry that encompasses so many details. As such, there are different types of companies in the sector. Some of these types are:
- Application security – These are firms that create software that prevent attacks in computers. The types of application security firms are antivirus, firewalls, and encryption.
- Network security – These are cybersecurity companies that provide security to a company’s network.
- Cloud security – With more people and companies relying on cloud security, there are companies like CrowdStrike that provide solutions to protect them.
- Internet of Things (IoT) security – These are companies whose products are embedded in IoT products.
- Critical infrastructure security – These are firms that help to protect important infrastructure like the electricity grid.
- Identity theft security – This is a type of cybersecurity that helps people and companies prevent identity theft.
KEY DATA TO WATCH IN CYBERSECURITY STOCKS
Traders and investors look at different things when trading in cybersecurity. Some of the most popular details are:
- Revenue and growth – In this, they look at how a company is growing compared to its peer companies.
- Successes – Traders look at the success of companies in identifying and neutralizing an attack. This leads to more contracts from other companies.
- Number of companies – Traders look at the number of companies added as customers in a quarter. In this regard, they also look at a company’s churn, or percentage of customers discontinuing service.
- ARPU – This refers to the Average Revenue Per User and whether it is growing or shrinking.
After reviewing the research within our team’s investment committee during the quarter, we identified network and cloud security as the areas we believe to have the most durable and strong growth opportunities two companies that we intend to add to your portfolios during the 4th quarter.
Finally, included below are a few of the articles and announcements we found most notable over the past few months from the companies we research:
Paypal in talks to buy Pinterest for $39 Billion
Zscaler & Crowdstrike deepen zero trust integrations
Okta expects annual revenue to jump by 30% with addition of new products