Cybersecurity is becoming an increasingly complex problem for organizations to manage. In this age of mobility powered by smartphones and cloud computing, businesses have to protect an increasingly decentralized workforce that could be accessing data and operating systems from anywhere. The explosion in mobile devices -- known as "endpoints" in industry parlance -- and rise of cloud-based operations has led to a shortage in cybersecurity talent for many IT teams.
That's where services like SOAR (security orchestration automation and response) and SIEM (security information and event management) come into play. The systems automate the gathering of data to help detect and respond to threats from cyber-based baddies, using things like machine learning (a branch of artificial intelligence) to help security teams keep up.
It's been a small but fast-growing segment of cybersecurity, and global spending on SOAR and SIEM services is expected to grow by low- to mid-teens percentage rates on its way to topping a few billion dollars spent annually in about five years' time. Thanks to a string of acquisitions a couple of years ago, big data analytics firm Splunk (NASDAQ:SPLK) is a leader in SOAR and SIEM.
To that end, the always conservative but still fast-growing Fortinet (NASDAQ:FTNT) recently announced it acquired security automation platform CyberSponse for an undisclosed sum. One of the best ways to invest in cybersecurity, this is a smart move on Fortinet's part.
Some context on the deal
CyberSponse is a small outfit. According to Crunchbase, the company has raised just $7.6 million in funding, with the last investor plopping money down back in 2016. Thus, Fortinet's purchase price is likely very small (especially considering it's done $2.05 billion in sales over the last 12 months).
That's not a bad move, though, and is in keeping with Fortinet's growth strategy. SOAR is still a small industry, and Fortinet already offers SOAR and SIEM through its various security offerings -- like Fortinet Security Fabric, which covers all the bases for an organization's complex needs. Plus, CyberSponse was likely a good fit as it was already a partner firm on the Security Fabric platform.
What it means for this cybersecurity leader
Flying in the face of its spend-happy peers, Fortinet's measured and calculated response to automation is likely to yield rich results for shareholders. The security industry has been undergoing rapid change and consolidation, and many incumbents have been forced to spend copious amounts of cash on acquisitions to maintain mixed growth results. Small cloud-based upstarts have been winning market share as cybersecurity has evolved, but most of them are unprofitable as they dump money into sales and marketing campaigns.
Fortinet stands apart as a unique investment in the security space. It is a firm rooted in cybersecurity principles of yesteryear, but has successfully rolled with the punches by mostly innovating in-house. Along the way, those innovations haven't been offsetting losses elsewhere, but rather have continued to fuel respectable growth. Sales through the first nine months of 2019 are up 19% from the same period in 2018. Even better is that, due to its disciplined expense management, earnings per share are up 41% this year.
With the takeover of CyberSponse, investors can expect more of the same from Fortinet: It won't be the fastest-expanding name in the industry, but it will likely be one of the most profitable ones. Shares are up 48% year to date in 2019 as of this writing, so I'm not buying any more shares right at the moment. Nevertheless, I still maintain this is one of the best plays in cybersecurity investing. If it isn't already, it deserves to be on your radar.