New Cybersecurity Companies Have Their Heads In The Cloud – Forbes

Privacy has become a big deal. Government regulators are moving to squash indiscretions and protect consumers while preserving constitutional liberties a tall task.

The Federal Trade Commission recently announced wide-ranging monetary settlements withFacebookandEquifaxto resolve ongoing investigations.

Facebook will pay $5 billion for its part in the Cambridge Analytica data scandal. State attorneys general asserted that lax standards at the social media giant allowed political operatives to weaponize fake news accounts and influence the 2016 presidential election.

Hacker internet computer crime cyber attack network security password protection

TheNew York Timesreportedthat Equifax, a leading consumer credit reporting agency, will pay $650 million to settle class-action lawsuits related to its data 2017 breach.

In a corporate video released following the attack, Equifax CEO Rick Smith said cybercriminals breached company databases between May and July 2017. They stole full names, social security numbers, birth dates, addresses and driver license numbers for 145 million persons. Credit card credentials were lifted for 209,000 customers.

Equifax collects and aggregates financial information on 800 million individuals and 88 million businesses worldwide. Its business is protecting data. The company employs an experienced staff of IT professionals, yet their defenses proved no match for the sophisticated attacks of cyber crooks.

Its a new world, and the bad guys are winning.

Its easy to get distracted by these headline-grabbing fines. But investors should pay attention. New competitive moats are forming around data security, and scale is more important than ever.

Analysts at Gartner, an information technology research company,predictedthat worldwide spending on cybersecurity would grow 8.7% in 2019, to $124 billion. The firm cited security breaches, business needs created by digital transformation and ongoing regulatory changes as growth drivers.

Hidden in that report is the surprising growth of cloud-delivered, Security-as-a-Service deployments. Analysts noted that although on-premises solutions are still the most popular, cloud-based security is becoming the preferred delivery model for a number of technologies.

During the past two months,Microsoft,IBM,Amazon.comandAlphabetall reported dramatic increases in their cloud computing infrastructure businesses.

The scale at which this can be done is the attraction. Enterprises have been able to build applications in the cloud, and then add computing power, storage and data analytics as needed.

Now theyre discovering this scalability is also possible with cybersecurity.

Chronicle, a Google Cloud cybersecurity business,launchedBackstory in March. The cloud service is a lot like Google Photos. Enterprises and organizations dump their data into silos. Then the system structures everything, stores the data in the cloud and compares it to a continuous stream of threats.

Like Photos, Backstory uses real-time machine learning and advanced data analytics. And because it is constantly improving, Chronicle managers claim it gives security professionals the tools to get a leg up against advanced, data-swiping antagonists.

Zscalerbuilds walls around data, not applications. The San Jose, Calif., company makes cloud-based, next generation firewalls.

The idea turns traditional network security on its head. Most enterprise security solutions have been built around security appliances, where threats are pushed to siloed servers. Unfortunately, that model is hopelessly broken.

More importantly, appliances have not stopped hackers. Plus, appliances are expensive and do not scale well. The only way to add more capacity is to buy more appliances. Unfortunately, that increases bottlenecks and latency. Its the anathema of the hybrid and cloud-based infrastructure that dominates modern enterprise computing.

Zscaler claims to operate the worlds largest Security-as-a-Service stack, processing 35 billion requests, with 125,000 unique security updates every day. And its cloud architecture means every client, from powerful workstations and laptops, to smartphones and tiny Internet of Things devices, get the same level of security.

When Zscaler finds a threat anywhere, it blocks it everywhere. In the process, customers get better performance and lower costs than security appliances.

I originally recommended the stock in June 2018 at $28, then again in January 2019, at $41. At the time I explained that although the stock might seem expensive at 520x forward earnings, the business was growing fast and at the center of a new digital security trend. Sharesreached $89, before falling back to $48.

For what its worth, the stock now trades at 174x forward earnings and 20x sales. Sales grew 59% in fiscal 2019. The stock is up 19% year to date.

Zscaler is still in the right place, with the right product.This pullback looks like an attractive entry point in a great longer term story.

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New Cybersecurity Companies Have Their Heads In The Cloud - Forbes