Anyone following the Cyber Security Index could see from the beginning of the year, it jumped about 10% and this after in the last 12 months has already made an impressive performance.
What supports the increase of the index?
What comes up in the earnings season for the cyber companies?
The focus returns to the cyber sector, not only because of the surge in cyber attacks in the year 2016, the increase of investments in improving protection against such attacks and the expected further increase in the coming years.
The new factor in this equation has been at the beginning of 2017 is the public recognition of the new US president Donald Trump in the cyber risks and his commitment to increasing investments and employment in the field.
This after cyber crimes also starred in US elections in the past year, guilty of being used for foreign entities outside the US (especially Russia) to intervene in favor of Trump.
In the White House website which published some of his plans, Trump states that
“Cyberwarfare is an emerging battlefield, and we must take every measure to safeguard our national security secrets and systems”. We will make it a priority to develop defensive and offensive cyber capabilities at our U.S. Cyber Command, and recruit the best and brightest Americans to serve in this crucial area.”
He did not specify amounts, but the last week of January Trump met with cyber experts to discuss emerging with the presidential decree, instructing all government authority to examine its cyber risks and to formulate ways of dealing with them.
2016 was a record year in terms of cyber attacks and as we shall see next year is going to be no less busy. Difficult to assess the extent of the cyber attacks “industry”, in part, because many companies are afraid to report such attacks because of the damage that publishing it might cause them.
Delta Airlines, for example, canceled the last weekend in January 280 flights in two days because of “essential IT systems went down”. Although computer malfunction is not an unusual phenomenon, but the fact that a company with annual revenues of $ 40 billion and 83 thousand employees can not deal with this situation occurs for several days raises quite a few questions about the nature of the problem. Especially when it happens one week after a similar “failure” to the competing airline United Airlines.
Cyber Crime Costs Projected To Reach $2 Trillion by 2019, compared with an estimated Three years ago, the The Wall Street Journal estimated that the cost of cyber crime in the U.S. was approximately $100 billion. and In 2015, the British insurance company Lloyd’s estimated that cyber attacks cost businesses as much as $400 billion a year
As a derivative of these threats, the main source of industry growth is due to an increase in investments of defending themselves. According to data from Gartner, investment products and services to Cyber in 2016 was estimated at the US $81.6 billion and keep on growing.
Until now the financial institutions were major investors in protecting against cyber attacks – whether voluntarily or because the regulation required them – it is now growing recognition that large-scale investment is required from all sectors. For example in the field of basic infrastructure (electricity networks, for example), energy (production and transmission infrastructure) and more.
In the past year cyber shares rose almost 40%, compared with an increase of approximately 24% for the S&P500 and 29% on the Nasdaq 100 (as of February 6).
Performance are also clear from the beginning of 2017 when the leading ETF to exposure to Cyber Security Index, HACK, rose by about 10%, compared with an increase of only 4.3% in the S&P500.
What did the cyber shares in the last year?
Despite the rapid growth in the sector, many companies suffer great competition, slow income growth, and low profitability or even a loss. The various stock performance also stands out, especially in light of the financial statements.
Reporting season for the fourth quarter of 2016 although not over, but for now, it seems that the big companies in the field are surprisingly good and small companies rather negative surprises.
For example, we have seen excellent reports of Check Point, the largest company in the index with a little over 5%, issued a report with a growth of 6% in revenues and a big surprise in net profit and operating profit.
Fortinet company also specializes in securing cyber surprise with revenues and profits beat expectations and its stock soared in response hearts 14%, making it almost the largest company in the index.
On the other side, we have also seen less good surprises smaller stocks in the index. For example, FireEye weighing the index is now 3.5%, reported lower than expected revenues and the loss was smaller than expected after the stock fell by about 16% Advertising
The pricing of the shares in the cyberspace is not cheap and many are still not profitable.
However, the sector is based on the expectation of exponential growth, a multiplier can be misleading as the historical data of the companies.
This combination ensures apparently volatility and possibly a higher return for those who remain there long enough.
What Do You Think About the Cyber Sector?