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hsmith@firstanalysis.com
- We present our annual analysis of publicly traded, enterprise-focused cybersecurity firm performance. We highlight that 2021 revenue grew 27%, a notable acceleration from 2020's 19.8% growth and 2019's 20.3% growth, and that actual 2021 revenue exceeded initial guidance by an average 7% and a median 6%, suggesting robust overall demand has only increased.
- We also highlight the emergence of two giants in the cybersecurity sector, something that hasn't happened previously in the sector's history. Fortinet (FTNT) and Palo Alto Networks (PANW) have accomplished what competitors in the past failed to do: successfully extend their offerings to new growth areas and thereby grow above industry-average rates at massive scale.
- With this change, the cybersecurity market structure is for the first time beginning to look more like many other software markets, where a few megacap leaders dominate and many smaller players fill emerging voids.
- We examine the correlations between top- and bottom-line outperformance and stock price performance and believe they indicate cybersecurity investors are still more focused on top-line growth than bottom-line metrics.
- Our analysis of one-, three-, and five-year cybersecurity stock performance through March 28, combined with other elements of our sector analysis, points to prospects for the group to outperform the broader indexes over longer time frames than we've seen historically.
TABLE OF CONTENTS
Includes discussion of CHKP, CRWD, CSCO, CYBR, FTNT, MIME, NET, OKTA, OSPN, PANW, S, SCWX and ZS
How we looked at the market
Revenue growth suggests demand accelerated
Demand strong, growth accelerating
Cloud continues to shine
Revenue guidance outperformance also points to strong demand
Connection between EPS guidance and stock performance less clear in 2021
See prospects for sustained cybersecurity stock outperformance
Cybersecurity index continues to outpace S&P 500 and Nasdaq
Q1 cybersecurity M&A activity declines from Q4 surge
Q1 cybersecurity private placement pace within recent range
How we looked at the market
This report presents our annual analysis of publicly traded, enterprise-focused cybersecurity firm performance. Unlike our previous annual analyses published in December, which relied on preliminary indications of full-year performance, the late-March timing this year enables us to include final results for companies with a Dec. 31 fiscal year and those with a Jan. 31 fiscal year, which we treat as 2021 in our analysis.
To be included in this year's analysis, companies had to be listed on a U.S. exchange, have most-recent year revenue greater than $100 million, derive the vast majority of their business from supplying cybersecurity solutions to businesses and government customers (not consumers), and have been public for all of 2021. Relative to our most recent annual analysis in December 2020, we have removed three companies that were acquired during the year: McAfee, Proofpoint and Zix. In addition, due to the mid-year sale of Mandiant's (MNDT, formerly FireEye) products division, we exclude Mandiant from our revenue growth and guidance analysis, as its original 2021 guidance included this divested division. Consistent with our focus on business-to-business companies, we again exclude consumer-focused cybersecurity companies such as NortonLifeLock (NLOK).