Will the "Internet of Things" Cause a Boom in Cybercrime?

In what can only be described as a delicious case of irony, it appears as though, after decades of storing half-eaten cans of Spam, the fridges are finally starting to get their own back.

Recent research shows that over the last holiday period, a "botnet" consisting of 100,000 "smart-devices" including TVs, home entertainment systems, and yes, even a refrigerator, sent out 750,000 spam emails.  While this may seem like a drop in the ocean at first, it is worth bearing in mind that by 2020, it is predicted that there will be between 50 billion-1 trillion connected devices in circulation . Cybercriminals must be licking their lips in anticipation.

While someone hacking into your refrigerator to find out what's on your shopping list probably isn't the end of the world, someone bypassing your smart door lock to gain access to your house probably would be. With the number of connected devices set to grow exponentially, it's clear that consumers are going to need protection, and lots of it. But, which companies could benefit? 

Consumer protection
From Google's Nest thermostats to smart toothbrushes, it appears as though, at least for a while, the majority of smart devices will be controlled using apps on smartphones or tablets. This could present many risks to consumers, given the seeming ease with which some devices can not only be hacked directly, such as in the recent Internet-enabled security camera scare, but also through malware-infected smartphones/tablets that could give hackers another route to gain access to these smart devices. 

In addition to the boom in smart devices, the number of smartphone and tablet users is also set to increase significantly between now and 2019, as the graph below shows. 

These two factors could present a huge opportunity to both AVG Technologies  (NYSE: AVG  ) and Symantec (NASDAQ: SYMC  ) , the two leaders in mobile security. Security-concious consumers have already downloaded Symantec's Norton Antivirus software over 10 million times via the Google Play Store, while AVG currently has 57 million active mobile users. The number of mobile users is set to increase, and with it, the number of security threats. 

How do the players stack up?

Company

Market Cap

Annual Revenue

Quarterly Revenue Growth (YoY)

P/E

Forward P/E

Operating Margin

Profit Margin

Symantec

$16.22 billion

$6.88 billion

(3.6%)

20.26

12.20

19.17%

11.82%

AVG

$911.38 million

$400.42 million

5.10%

16.40

8.72

27.13%

13.93%

Source: Yahoo! Finance

AVG Revenue (Quarterly YoY Growth) Chart

AVG Total Return Price Chart

Of the two companies, AVG stands out. The stock is currently priced at a modest 8.72 forward P/E, which probably doesn't take into account the possible growth prospects from its mobile products, which currently only make up a small fraction of its total yearly revenue.  In fact, AVG has only recently started to monetize its mobile users. Given the company's successful track record of developing its once-completely free PC antivirus into a business with over $400 million of revenue, investors should have plenty of confidence in the company's ability to do the same with its mobile products. Admittedly, slowing growth in the company's core PC market is one area of concern, and was probably one of the main reasons why the share price took a massive hit in November. Still, these fears are probably overdone, so the stock could be an excellent recovery play for the year ahead.

Symantec is also moderately priced at only 12.20 forward P/E, however is currently suffering from anemic growth, which was -3.6% last quarter. The company, however, is nicely diversified across the business and consumer sectors, and in addition to mobile computing, has potential growth opportunities in cloud computing. However, it remains to be seen whether Symantec can gain more of a foothold in these highly competitive markets. Potential investors should probably be cautious and wait to see if the company can deliver on its growth plan.

The bottom line
With the number of Internet-enabled devices set to grow exponentially over the coming decade, the number of cyber-security threats is likely to rise substantially too. Security software providers like AVG and Symantec could be set to benefit, but investors should pay close attention to whether either company can deliver on its promised growth plans.

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