Slippy Spider and Deadeye Hawk; the online adversaries identified by CrowdStrike sound like comic book villains. The Texas-based company’s latest annual cyber security report does not make for a relaxing read. Cloud computing is hailed as a secure method of data storage. Yet CrowdStrike reports that observed cloud exploitation rose 95 per cent last year.
As more data moves to the cloud, protection has failed to keep pace. Regulators are imposing stringent penalties on failures. McKinsey predicts a security awakening as annual damage from cyber attacks exceeds $10tn by 2025. It foresees a $2tn total addressable market for security up for grabs.
There is an incentive for cloud providers to increase security spend. But many customers opt to use a mix of on and off-premise storage and work with multiple vendors. It is difficult for one provider to offer comprehensive protection. Particularly for attacks instigated by the theft of valid user identification details.
This is extremely good for third-party cyber security stocks. Palo Alto Networks pointed to customer additions when reporting that in the three months to January, trailing 12-month net income was positive for the first time.
CrowdStrike has yet to report a profit. That, plus lower spending forecasts from businesses, has dragged its share price down 39 per cent over the past year. It now trades on 13 times sales, down from 38 times in early 2022.
However, losses are narrowing and sales are growing. Free cash flow is positive. It is sitting on $2.5bn of cash and cash equivalents and just $741mn of long-term debt.
Expansion into new areas of security requires heavy spending on research and development, which could eat away at that cash. In the last quarter, it spent $155mn on R&D, up from $98mn the previous year. But this also raises the prospect of increased spending by existing clients. The potential global market for artificial intelligence cyber security is more than $100bn by 2032, according to Precedence Research, up from $25bn next year. CrowdStrike already squeezes an extra 20 per cent of revenue from existing customers yearly. AI could push it even higher.