Since the vaccine news last month, some investors have started questioning the growth sustainability of work-from-home winners, including cybersecurity names, considering that most lockdowns are now behind us and that we are heading towards a full economy reopening in 2021. This week’s earnings and guidance from some of the top software vendors securing the remote revolution (Zscaler, Crowdstrike, Okta and DocuSign) were then widely anticipated. They did not disappoint, to say the least.
With Zscaler and DocuSign’s revenue accelerating to 52% and 54% respectively (vs. 36% and 38% pre-Covid), Crowdstrike and Okta’s growth remaining line with previous quarters (+86% and +42%, respectively) and current quarter guidance pointing to a continued momentum, potential concerns about a growth slowdown were clearly put aside.
Even in a post-pandemic world, large corporates will continue to support remote working, as already announced by many of them. While this new way of working has obvious cost advantages (reduced office space), it is also a way to incentivize and retain employees who appreciate this new work-life balance. Work-from-home is thus strongly accelerating the structural and inevitable shift towards cloud computing and, as a consequence, reshaping the cybersecurity industry.
Comments made during the earnings calls are clearly confirming this trend with record backlogs and commercial pipelines and an increasing number of large deals. Furthermore, as these corporates have just started to scratch the surface on their needed IT infrastructure modernization, the same cybersecurity companies are confidently raising next year’s guidance, also knowing that they will benefit from the economy reopening in 2021 that is likely to have a positive impact on corporate IT budgets with a reduced level of cost and capex scrutiny.
Importantly, the operating leverage displayed by cybersecurity vendors in their quarterly report (Zscaler’s operating jumped to 14% from 4%, Crowdstrike’s to 8% from -13%) is also likely to increase visibility and confidence in the sector’s long-term earnings power and hence sustain valuations.
The four technologies securing remote work are identification (Okta), secure access (Zscaler), device protection (Crowdstrike) and e-signature (DocuSign). As large corporates usually prefer to deal with one-stop-shops for simplicity and convenience reasons, we would not be surprised to see an acceleration in the segment’s M&A activity in order to bring various technologies into a single offering. Datacenter giants Microsoft, Amazon and Google could also enter the M&A game in order to strengthen their cloud offering.
