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CyberArk Stock Pitch
- 1. 1 BUFC TMT Sector CybersecurityIndustry NYSE: CYBR Senior Analyst: Khyati Chhaparia Junior Analysts: Wei Hao (Kenny) Chia, Evan Brodie, Douglas Young, Wesley Perler, Nelson Hubbard
- 2. 2 Recommendation Summary Recommendation Summary Company(CYBR) Current trading price (12/3/19) $118.58 Target Price $151.11 Upside potential 27.4% Recommendation BUY
- 3. 3 Industry Overview Sector IndustrySub-industry Technology, Media and Telecommunications Software and Services Cybersecurity kkk Industry Definition: Cybersecurity involves protecting information and systems from cyber threats. Cyber threats involve application attacks, malware, ransom, phishing and exploit attacks. This industry serves a large range of clients including government agencies, corporations and individual consumers. Major Players By Market Cap Lockheed Martin: 107.71 B IBM: 121.87 B Cisco: 207.23 B Amazon: 885.43 B Microsoft: 1.11 T Industry Drivers: • Increase in private investment in computers and software à increase in number of broadband and mobile connections • The growing prevalence of high - profile cybersecurity attacks and the risks associated with potential data breaches • Increase in Corporate Profit and Government Investments Source: Palo Alto Networks, Investing News, NASDAQ, IBIS World
- 4. 4 Need for Cybersecurity-Increasing Cyber Crime Cybercrime is the greatest threat to every company in the world The costs of cybercrime in 2021 will nearly double the costs of 2015 according to a report sponsored by Herjavec Group. These costs represent the greatest transfer of economic wealth in history, and puts companies unprepared for cyber attacks at major risk. $3 trillion in 2015 $6 trillion in 2021 Cybercrime costs include damage and destruction of data, stolen money, lost productivity, theft of intellectual property, theft of personal and financial data, embezzlement, fraud, post-attack disruption to the normal course of business, forensic investigation, restoration and deletion of hacked data and systems, and reputational harm. Source: Tech Republic, Business Insider 0 100 200 300 400 500 600 Marriott Quora Google Chegg Facebook Number of customers affected (millions) Data Breaches in 2018
- 5. 5 Increased Government andCorporate Spending 0 2 4 6 8 10 12 14 16 18 20 FY 2017 Actual FY 2018 Actual FY 2019 Estimate FY 2020 Budget Budget ($ billion) Source: Statista, Cyber Crime Magazine, Security Intelligence, Gartner Gartner's survey of 528 government CIOs worldwide found that almost half expect spending on cybersecurity to increase in 2019, which means it ranks as one of their top priorities for funding growth One of the reasons for increased Government Spending on Cybersecurity: Government’s biggest asset is data and as the stewards of the Government’s data, they need to do everything to retain that trust Government Public and private companies A recent report by Ping Identity suggests that one in five users have been victims of a data breach • 34% experienced financial loss • 78% said they would stop engaging with the brand online • 36% said they would stop engaging with the brand completely • 49% said they wouldn’t engage a service or application that experienced a recent data breach Of the respondents who fell victim to a data breach: 0 20000 40000 60000 80000 100000 120000 140000 2017 2018 2019 Cybersecurity Spending ($ million)
- 6. 6 Company Overview CyberArk isthe global leader in privileged access security, a critical layer of IT security to protect data, infrastructure and assets across the enterprise. CyberArk delivers the industry’s most complete solution to reduce the risk created by privileged credentials and secrets. The company was founded in 1999 by current CEO Udi Mokady and is headquartered in Newton, Mass. KEY FINANCIALS More than 5000 customers 90 locations 50% of Fortune 500 30% of Global 1000 Source: CyberArk, LinkedIn 5000 employees Ticker: CYBR Current Trading Price: $118.58 Recommendation Summary: BUY Target Price: $151.11 Upside Potential: 27.4% Market Cap: 4,395.3 M Revenue: 413.3 M EV: 3944 M P/E: 66.1x EV/ EBITDA: 50.8x AWARDS Won multiple awards and titles: CyberArk Named Top Privileged Account Security Solution for Government Agencies 0 100 200 300 400 2014 2015 2016 2017 2018 Revenue (2014 - 2018)- millions 35% CAGR EV/ Revenue: 9.5x Shares Outstanding: 37.07 M
- 7. 7 Privileged Access Security Source:EY, The Motley Fool, CyberArk CyberArk dominates the privileged accounts niche of the cybersecurity market. Many cybersecurity companies focus on securing the external perimeter with threat prevention solutions or firewalls, while larger IT companies offer monitoring solutions within the network. CyberArk, however, counters hackers who gain access to privileged employee accounts to steal data. At least 80% of data breaches have a connection to compromised privileged credentials 3 days after initial access, attackers can obtain domain-level admin credentials The average time to discovery is 99 days With PAS
- 8. 8 Product Breakdown Revenue (%)- 2018 License Maintenance & Professional Services Core Privileged Access Security Continuously discovers and manages privileged accounts and credentials, records and monitors privileged sessions and remediates risky activities across on-premises, cloud and hybrid environments. Endpoint Privilege Manager Removes and manages local admin rights on workstations and servers to prevent lateral movement, detects and blocks suspected credential theft attempts and automatically blocks malware from running Application Access Manager Secure and manage credentials for applications, scripts, configuration files, DevOps environments and other non-human identities. Alero Enable secure remote vendor access to the most sensitive IT assets without the need for VPNs, agents or passwords. It combines Zero Trust access, biometric multi-factor authentication, just-in-time provisioning and visibility and for provides remote vendors secure access to the CyberArk Core Privilege Access Security Solution. Privilege Cloud The CyberArk Privilege Cloud is a SaaS solution that provides a simplified path to securely store, rotate and isolate credentials, monitor sessions, and quickly deliver risk reduction to the business. Source: CyberArk
- 9. 9 Maintenance and ProfessionalServices Officials help identify and prioritize the most sensitive privileged access in the organisation • Consulting Services The consulting services team designs the approaches that will establish an organisation’s unique privileged account security program. They also offer specialized consulting services for secure DevOps and cloud environments. • Implementation Services CyberArk experts guide internal teams through the deployment of the CyberArk Privileged Access Security Solution based upon the recommended design, architecture and strategy developed by Consulting Services. • Onboarding Services Enable those customers with limited staffing to accelerate the onboarding of privileged accounts • Project Management Services The CyberArk Project Manager serves as a single point- of-contact to facilitate communications and effectively manage expectations throughout the project life-cycle. SECURITY SERVICES RED TEAM SERVICES Provide a safe way for security operations teams to test their ability to effectively defend against cyber- attacks on their compute and development environments. Revenue (%) - 2018 Maintenance Professional Services Source: CyberArk
- 10. 10 Revenue Generation Sale ofCybersecurity software perpetual license Complementary sale of maintenance & support contracts Professional services as requested by customers Renewal of maintenance & support contracts • Two revenue segments: 1) License and 2) Maintenance & Professional Services • License gross margins are extremely high (~95%) due to negligible variable unit costs. • Maintenance & Professional Services margins are relatively lower (~75%) due to additional labor component required. Revenue Model Customers • CYBR serves over 4,800 global businesses across diverse industries • More than 50% of the Fortune 500 are customers • Key customers by revenue: Banking (30%), Government (11%), Manufacturing (10%) Revenue (%) - 2018 License Maintenance & Professional Services 56%44% Source: CyberArk 60% 33% 7% 0% 10% 20% 30% 40% 50% 60% 70% Americas EMEA APJ Geographies FY2018
- 11. 11 Revenue Generation Supply Chain Deployedsystems are the end- customers who come from various geographies and unrelated industries. C3 Alliance comprises of 120+ certified partners, 200+ certified joint solutions, and 200+ plug-ins which involves partner validation and net new opportunities Networks are the start of the attack chain where internal & external attackers commence their operations; CYBR serves as the gatekeeper of these networks. Source Suppliers: C3 Alliance comprising of leading enterprise software, infrastructure and security providers. Networks: On- Premises Data Center, Cloud, Hybrid, Deployed Systems 30% 11% 10% Verticals FY2018 Banking Government Manufacturing Energy Retail Insurance Telecom IT Services Transportation and Travel Health Pharmaceuticals Professional Services Other Source: CyberArk Partners
- 12. 12 Competitive Advantage- Innovation In2018, CyberArk was named the Most Innovative Privileged Access Cybersecurity Company. Multiple drivers for long-term growth Continue Product Innovation Increase Sales Research Land and Expand Expand into New Markets - Detect and prevent Kerberos attacks - Privileged attacks research Secure endpoint credentials Admins and privileged users SaaS offering Zero Trust Remote Vendor Access SaaS offering - Secure DevOps secrets - Automate onboarding of credentials with AWS Land and Expand Strategy Source: CyberArk 2015 2016 2017 2018 2019
- 13. 13 Management Overview Udi Mokady Chairmanand CEO Since 2005 Mokady founded Cyberark in 1999 and served as the COO till 2005. He then assumed the position of the CEO and was elected Chairman of the Board in 2016. He orchestrated the company’s market expansion in the US, Europe, and Asia by elevating awareness of privilege-related security and compliance risks while also implementing and managing channel development, international sales operations and marketing Education: • MSM from Boston University Key Experiences • BoD Demisto • 2018 Aspen Award 2017 SC Media Reboot Award • 2014 EY Entrepreneur of year • MAS Cyber Security Advisory Panel • Brandeis International Business School Board of Advisors Source: CyberArk, LinkedIn Josh Siegel CFO Since 2011 Education: • MBA from University of Michigan Key Experiences • CFO Voltaire Ltd. • VP, Finance- Kerenix Networks • Controller and Treasurer- Lucent Technologies • Director, Capital Markets- SLM Corporation Siegel has more than twenty years of financial experience in both public and private global organizations and has led company public and private offerings, capital restructurings and varied commercial transactions across hi-tech and the financial sectors. Previously, he was the CFO of Voltaire where he executed the company’s IPO, managed investor relations and the company’s merger agreement with Mellanox Technologies Roy Adar SVP Product Management Since 2006 Education: • MBA from Northwestern and Tel-Aviv University Key Experiences • Product Manager- NICE Systems • Senior Consultant/ Product Manager- Integrity Systems At CyberArk, Adar leads the company’s product strategy, design, and delivery. He is an industry veteran with over 25 years of experience in information technology, product management, and business strategy. Adar’s previous roles included product and market management, IT consulting, database administration, and software development
- 14. 14 Risk Analysis 1. ChannelPartner Risks. CYBR relies on channel partners to generate a significant portion of its revenues (65%) 2. Competition/Pricing Risks. CYBR faces competition from wide variety of IT security vendors in different market segments 4. Product Risks CYBR licenses & integrates certain open source software components from 3rd parties 3. Cyclicality Risks. CYBR’s business depends on customers’ willingness & ability to invest money in IT security, which is dependent upon their overall economic health. RISKS IMPLICATIONS 1 2 3 4 If CYBR’s channel partner’s do not effectively sell their products and services, their revenue will be greatly impacted. Negative economic conditions in the global economy or certain regions such as U.S. or Europe could decrease corporate spending on IT software. Source: CyberArk, SEC Filings CYBR’s competitors may enjoy competitive advantages such as greater name recognition, larger budgets and lower prices. If the license terms for the open source code change CYBR may be forced to re-engineer their software or incur additional costs.
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- 17. 17 Recommendation Summary Ticker: CYBR CurrentTrading Price: $118.58 Recommendation Summary: BUY Target Price: $151.11 Upside Potential: 27.4% Market Cap: 4,395.3 M Revenue: 413.3 M EV: 3944 M P/E: 66.1x EV/ EBITDA: 50.8x EV/ Revenue: 9.5x Shares Outstanding: 37.07 M KEY FINANCIALS Rising Cybercrime: • Increase in data breaches and the rising costs associated with those will drive demand for cybersecurity systems • Both corporations and government entities are projected to spend more on cybersecurity with every year – CyberArk serves both those segments Constant innovation: • CyberArk is the most innovative Cybersecurity company- by releasing new solutions regularly they are able to both attract new customers and retain their existing ones • They dominate this niche segment and serve 50% of the Fortune 500
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- 20. 20 Porter’s Five Forces THREATOF NEW ENTRANTS THREAT OF SUBSTITUTE PRODUCTS BUYER POWER SUPPLIER POWER COMPETITIVE RIVALRY- HIGH THREAT OF NEW ENTRANTS – MODERATE • High customer loyalty • High informational advantages • Low cost of production BUYER POWER– MODERATE • Buyers are usually large firms • Many companies in industry offering similar services • However, many potential buyers in industry THREAT OF SUBSTITUTES – HIGH • Alternate cybersecurity solutions to privileged access security offered, such as identity management • Many firms in industry SUPPLIER POWER – MODERATE ● Moderate Sized Suppliers ● Specialty Materials ● Diversification of suppliers reduces risk • Lots of players in this industry • Customers have brand loyalty • Firms invest a lot in R&D to gain competitive edge Source: IBISWorld, CyberArk
- 21. 21 SWOT Analysis STRENGTHS WEAKNESSESOPPORTUNITIES THREATS • Proven track record of product innovation • Has 50% of fortune 500 companies as customers; other companies are more likely to trust them • One of the few top cybersecurity companies that allow their products to be deployed on a variety of platforms, such as cloud, on-premise, or hybrid • Strong distribution network • Economic uptick allows for clients to spend more • Recent court rulings have harshly penalized companies whose data has been breached, incentivizes companies to spend more on security • Reduction in the interest rates makes it easier for CyberArk to finance at lower costs • Intensifying relations between US and China can lead to creation of more governmental cybersecurity contracts • Limited success outside core business • Very reliant on customers from the Americas, do not have much exposure to other international markets • Gaps in product range opens up areas for competition • Shortage of skilled labor force • Rising pay levels and rising cost of raw materials (electricity)can pose a threat to future profitability • High availability of substitutes within industry • Highly dependent on the economy; If economy is declining companies might find it unnecessary to spend money on a cybersecurity system Source: CyberArk, Seeking Alpha, S&P
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