Check Point Software (NASDAQ:CHKP) made an important statement when it announced its intention to acquire the cloud cybersecurity start-up Odo Security last week. The legacy cybersecurity specialist claimed it will redefine secure remote access for enterprises, which sounds exciting given the need for these types of solutions in the context of the global shift to remote work. But before getting too excited, let's see what that means for Check Point and its shareholders.
Securing remote access to enterprise resources
There's no doubt the coronavirus and the shelter-in-place orders have boosted work from home.
Many cybersecurity players have posted strong results as enterprises urgently needed solutions to allow their employees to work from anywhere in a secure way. For instance, during the last quarter, Fortinet grew its revenue by 18% year over year to $615.5 million partly thanks to its SD-WAN solutions that facilitate remote working. Also, the cloud-based cybersecurity specialist Zscaler indicated its remote access platform Zscaler Private Access (ZPA), which allows remote employees to securely and easily access enterprise resources, contributed to 29% of the company's new businesses, up from 14% in the prior-year period.
Research outfit Gartner estimates securing remote workforces should be one of the 10 security projects enterprises should prioritize to reduce risks for their businesses.
A differentiating cloud-based offering
By acquiring Odo Security, Check Point claimed to redefine secure remote access to enterprises. Given the shift to remote working, that sounds like a big deal.
Indeed, Odo Security's solution allows employees to securely access corporate resources and applications from anywhere without installing any client software. It replaces the cumbersome legacy VPN (virtual private network) technology, which requires installing extra software on the client. In addition, VPNs create a visible entry point to corporate networks that hackers like to target.
Granted, other solutions such as Palo Alto Networks' Prisma Access, Cloudflare's Cloudflare Access, and Zscaler's ZPA already offer clientless capabilities to access private web applications. But none of them allows remote access to other types of resources such as servers and databases without extra client software.
Thus, with the acquisition of Odo Security, Check Point should propose a differentiating enterprise-grade clientless solution to securely access servers and databases from anywhere. However, shareholders should not get too excited.
Odo Security's platform is based on the open-source technology Guacamole, which is available to anyone at no cost. Other start-ups have also developed services based on that technology, and as Guacamole matures, large competitors may develop enterprise-grade solutions, too.
Also, the market for Odo Security's offering doesn't look enormous as enabling clientless access to databases and servers affects only developers -- other employees usually work with web applications only.
Shift to the cloud
In any case, the acquisition of Odo Security makes sense for Check Point.
The cybersecurity specialist, founded in 1993, must grow its cloud portfolio to remain relevant and offset the lack of growth of its legacy on-premises hardware business. During the last quarter, the company's products and licenses segment stayed stable year over year at $122.6 million.
In contrast, CFO Tal Payne indicated during the last earnings call the cloud business grew 70% year over year. Yet cloud still represented less than 10% of revenue.
Thus, Odo Security's innovative cloud-native solution represents an attractive opportunity for Check Point to accelerate its transition to the cloud.
During the last quarter, revenue grew 4% to $506 million, and the operating margin of 44% remained impressive thanks to low sales and marketing expenses as a percentage of revenue.
Management didn't reveal the agreed price to acquire Odo Security, which suggests the transaction should have a minimal impact on the company's $4 billion in cash, cash equivalent, and marketable securities as of the end of the second quarter (with no debt).
Thus, given its reasonable valuation and ongoing transition to the cloud, Check Point represents an attractive opportunity that investors looking for exposure to the cybersecurity sector should consider.