If you are looking for growth stocks to include in your investment portfolio, a good method to use is to identify promising sectors with great long-term potential.
One of these sectors is cybersecurity.
Many companies have undergone rapid digitalisation by revamping their operating systems and upgrading their software.
As a result, these businesses require cybersecurity services to ensure that they are protected from malicious threats and intrusive cyberattacks.
We highlight four cybersecurity firms that are poised to ride on this long-term trend to grow their revenue and cash flows.
Cloudflare (NYSE: NET)
Cloudflare is a global cloud service provider that enhances the security and performance of its customers’ systems while eliminating the cost and complexity associated with managing network hardware.
The company reported a solid set of financial numbers for the first half of 2024 (1H 2024).
Revenue jumped 30.2% year on year to US$779.6 million with gross profit increasing by 33.7% year on year to S$605.5 million.
The cybersecurity firm also generated a positive free cash flow of US$73.9 million for 1H 2024, more than double the US$33.9 million churned out a year ago.
Cloudflare also reported an impressive increase in its large customer base, defined as those with more than US$100,000 in annualised revenue.
The number climbed from 1,749 in the second quarter of 2022 (2Q 2022) to 3,046 in 2Q 2024, representing a compound annual growth rate (CAGR) of 32%.
The company also boasts more than 30% of the Fortune 500 as paying customers as of 30 June 2024.
Cloudflare and Crowdstrike (NASDAQ: CRWD) announced an expanded partnership in May this year to connect their platforms to enhance security and stop breaches at scale.
Management has identified a total addressable market (TAM) of S$176 billion for Cloudflare’s developer, network, and zero trust services.
This TAM is projected to grow to US$222 billion by 2027, giving the company ample opportunities for further growth.
Cyberark Software (NASDAQ: CYBR)
Cyberark provides comprehensive identity security services across business applications, distributed workforces, and hybrid cloud environments.
The company reported a strong set of earnings for 1H 2024 with revenue rising 32.2% year on year to US$446.3 million.
Gross profit climbed 36.5% year on year to US$358.8 million.
The business also generated a positive free cash flow of US$108.5 million, a sharp reversal from the negative free cash flow of US$8.6 million.
Cyberark’s annual recurring revenue (ARR) grew 33% year on year to US$868 million, with the subscription portion of this ARR growing by 50% year on year to US$677 million.
The company has raised its guidance across all metrics with full-year revenue expected to be in the range of US$932 million to US$942 million, representing a 24% to 25% year-on-year growth.
Cyberark recently acquired Venafi, a machine identity management company, at an enterprise value of US$1.54 billion.
This acquisition will bump up Cyberark’s TAM from the current US$50 billion to around US$60 billion.
Fortinet (NASDAQ: FTNT)
Fortinet is a cybersecurity company with an integrated portfolio of more than 50 enterprise-grade products that protect half a million customers.
The company reported a stellar set of earnings for 1H 2024 with both revenue and net profit registering year-on-year increases.
Revenue increased by 9% year on year to US$2.8 billion with operating profit climbing 37.3% year on year to US$758.4 million.
Net profit surged 32% year on year to US$679.1 million.
The business generated a positive free cash flow of US$927.4 million for 1H 2024.
Fortinet estimates 2024 revenue to come in between US$5.8 billion to US$5.9 billion.
At its mid-point, this represents a year-on-year increase of around 10.3%.
Management has identified a huge TAM of US$282 billion by 2028 with the secure networking sector (US$70 billion TAM in 2028) growing at the fastest pace of 15.1% CAGR.
Palo Alto Networks (NASDAQ: PANW)
Palo Alto Networks, or PAN, offers artificial intelligence (AI) powered solutions in network security, cloud security, and security operations.
The company reported a sparkling set of earnings for its fiscal 2024 (FY2024) ending 31 July 2024.
Revenue rose 16.5% year on year to US$8 billion while operating profit soared 76.6% year on year to US$683.9 million.
Net profit catapulted more than fivefold year on year to US$2.6 billion, aided by a US$1.6 billion tax credit.
The cybersecurity firm also generated a free cash flow of US$3.1 billion for FY2024, up from the US$2.6 billion churned out a year ago.
PAN is the first pure-play cybersecurity cloud business to exceed US$700 million in ARR.
The company enjoyed a 30% year-on-year growth in annual contract value from new business, a testament to the company’s ability to attract new customers.
Management is optimistic about sustained growth in FY2025 after delivering a strong performance for FY2024.
Attention Growth Investors: Our latest report, “The Rise of Titans,” gives you a front-row seat on the 7 most influential US stocks today. If you’re passionate about tech and growth, you can’t go wrong with our research. Downloading this FREE report could be the most strategic move you make this year. Click here to get started now.
Follow us on Facebook and Telegram for the latest investing news and analyses!
Disclosure: Royston Yang does not own shares in any of the companies mentioned.
