Cybercrime has become a serious problem. In 2018, special agent Elvis Chan of the FBI told The Wall Street Journal, "Every American person should assume all of their data is [on the dark web]." Unfortunately, the situation is actually getting worse as the proliferation of connected devices, cloud computing, and remote work has introduced new vulnerabilities.
To that end, ransomware will target a new victim every five seconds in 2021, and the total damage inflicted by cybercrime will hit $6 trillion, according to Cybersecurity Ventures. Even worse, that figure is expected to grow at 15% per year to reach $10.5 trillion by 2025. Not surprisingly, organizations around the globe are looking to bolster their defenses, and CrowdStrike Holdings (CRWD 1.58%) and Zscaler (ZS 1.52%) have the software and the services that can help. As such, they are well-positioned to benefit from the increased need for cybersecurity. Here's what you should know about these two potential monster stocks.
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1. CrowdStrike Holdings
CrowdStrike specializes in endpoint protection. Its platform leans on artificial intelligence to predict and prevent cyberattacks, helping clients secure their devices, applications, and cloud services. Moreover, CrowdStrike's portfolio comprises 21 software-as-a-service products that address a number of industry verticals, from managed security and threat intelligence to identity protection and log management.
On that note, CrowdStrike has been named an industry leader by several analysts and independent testing companies, including Forrester Research, Gartner, SE Labs, and the International Data Corp. And that recognition has come alongside strong demand and impressive financial results.
Crowdstrike reached 14,687 customers in the third quarter, up 75% from the prior year. And its revenue retention rate came in above 120% for the 15th consecutive quarter, meaning customers are spending more over time. As a result, revenue surged 69% to $1.3 billion over the last 12 months, and free cash flow rose 67% to $411 million.
Going forward, industry tailwinds and product innovation should help CrowdStrike maintain that momentum. Specifically, its new Extended Detection and Response (XDR) module paves the way for further market share gains. The product unifies security data from devices, networks, cloud infrastructure, and email systems on a single platform, accelerating threat detection and investigation. It also integrates with another recently launched product, Falcon Fusion, a framework that allows security teams to automate complex workflows.
Management puts its market opportunity at $55 billion in 2022, but that figure is expected to double by 2025. That's why this cybersecurity stock looks like a smart buy right now.
2. Zscaler
Traditionally, businesses have secured resources by building firewalls around the corporate network. However, cloud computing and remote work have made that approach ineffective because many resources now exist outside that boundary. Zscaler's security cloud solves that problem, replacing traditional corporate networking solutions with its own zero-trust platform known as a secure access service edge (SASE).
In doing so, Zscaler accelerates and secures applications and data, allowing employees to connect to corporate resources from any device or location safely. Notably, Gartner has recognized Zscaler as the industry leader for 10 consecutive years. Gartner analysts believe that 60% of enterprises will have plans in place to adopt SASE services by 2026, up from just 10% in 2020.
In other words, Zscaler has a dominant position in a quickly growing industry. Not surprisingly, its financial performance has been impressive. Over the past year, the company has kept its retention rate above 125%, evidencing the stickiness of its platform. In turn, revenue rose 58% to $761 million, and free cash flow skyrocketed 207% to $185 million. But Zscaler is just getting started.
In the years ahead, digital transformation should be a significant tailwind for the company. As businesses lean into trends like cloud computing, software-as-a-service, and remote work, providing employees with fast, secure connectivity will become more critical. To that end, Zscaler puts its market opportunity at $72 billion. That's why this stock looks like a smart long-term investment.
