Work From Home (WFH) Boosts Cybersecurity

While companies worldwide turn to work from home (WFH) to comply with COVID-19 restrictions, protecting enterprise networks from a range of fresh threats has thrown cybersecurity vendors into high gear in more ways than one.

Case in point: In third-quarter 2020 financial results announced May 28, the cybersecurity firm Zscaler (Nasdaq: ZS) reported 36% growth in revenue year-over-year to $101 million, beating analyst estimates. The company also reported 55% growth in billings, solid cash flow metrics, and a 53% increase in capex from the same quarter 2019.

ZPA Key to Zscaler Success

Central to Zscaler’s success were sales of its Zscaler Private Access (ZPA), a cloud-based service that secures enterprise network applications for remote use. While another service, Zscaler Internet Access (ZIA), offers a secure gateway to the Internet, it was ZPA that drove 43% of new business to the company, compared with its 20% contribution across the prior two quarters.

Zscaler also seemed to benefit from integration of its solutions with Microsoft 365, the WFH foundation for many enterprise employees. Also attractive was Zscaler’s plan to obtain technology it lacks, demonstrated in its recent acquisition of Edgewise Networks for about $31 million, which heralds micro-segmentation in data centers; and the purchase in April of Cloudneeti for about $9 million, which should add protection against data misconfiguration in public clouds.

The news drove a rush on Zscaler stock, pushing the share price more than 10% to levels over $100 for the first time. But the surge was short-lived. Zscaler’s share price dropped amid general market volatility this week, at press time on June 2 the stock was still above $100 — $106.60 (−3.39 or 3.08%).

Zscaler’s good fortune is mirrored in reports from competitors. Check Point Software Technologies (Nasdaq: CHKP) rose in investor favor after reporting a 3% revenue increase year-over-year to $486 million in its latest financials.

Palo Alto, Fortinet Participate

For the quarter ended April 30, Palo Alto Networks (NYSE: PANW) reported revenues up 20% year-over-year to $869.4 million; billings rose 24% over last year's quarter. And though the vendor reported a GAAP net loss, its non-GAAP net income was $114.6 million, or $1.17 per diluted share. That was enough to set the stock on an upward curve that's persisted.

Another cybersecurity contender, Fortinet (Nasdaq: FTNT), reported revenue of of $576.9 million, a year-over-vear increase of 22%, for the first quarter 2020. Billings rose 21% from last year’s quarter.

Like, Zscaler, the companies reported capex of at least 50% year-over-year, with the exception of Check Point Software, which reduced quarterly capex 12% year-over-year. That doesn’t seem to have affected its popularity on Wall Street.

WFH Shifts Priorities

The WFH trend has shifted enterprise digital transformation plans, though vendors report this development differently. While some, such as Zscaler, say WFH has moved attention away from “legacy” virtual private networks (VPNs) and old-fashioned security appliances, Check Point Software says demand for its VPNs has been so great that Check Point has shipped equipment prior to getting official purchase orders in order to meet customer needs.

Zscaler and the other cybersecurity vendors mentioned here didn’t stress 5G in recent earnings presentations. But they did note the importance of securing mobile endpoints and IoT (Internet of Things) networks. They did mention the need to serve security at the network edge, and to offer subscription-based services instead of hardware.

None of them claimed to have solid insight about the future. As Gil Shwed, founder and CEO of Check Point Software, said on the company’s recent earnings call: “[A]ssuming that the macro level will stay stable is the wrong assumption, and I hope that I am wrong.”