A new cybercrime group known as Lapsus$ is tearing through the tech industry. In the last month alone, Lapsus$ hackers have claimed responsibility for an attack on Nvidia in which employee passwords were leaked, an attack on Microsoft in which some source code for certain products was leaked, and an attack on Samsung in which source code for Galaxy devices was stolen. Each of those situations is still evolving, but they already serve as a grim reminder that effective cybersecurity is critical.
With that in mind, CrowdStrike (CRWD 0.13%) and Zscaler (ZS -1.49%) have distinguished themselves as leaders in the cybersecurity industry, and both stocks look like smart long-term investments. Here's what you should know.
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1. CrowdStrike Holdings
CrowdStrike has become a cybersecurity powerhouse. Its platform comprises 22 software modules that span several industry verticals, including endpoint (device) and cloud workload security, identity protection, and managed services. One of the company's core innovations is the cloud-native architecture that allows it to crowdsource data from its network of protected devices. Using signals from millions of endpoints, CrowdStrike leans on artificial intelligence and behavioral analytics to detect and prevent even the stealthiest cyberattacks.
The company has received praise from a number of industry analysts and independent testing agencies. In 2021, Forrest Research and Gartner named CrowdStrike a leader in endpoint security, and the International Data Corp. recognized its leadership in managed detection and response, a vertical in which security experts provide protection as a fully managed service.
In short, CrowdStrike's brand has become synonymous with industry-leading threat protection, and that has led to consistently strong financial results. Last year, its clientele grew 65% to surpass 16,300, and 69% of those customers now use four or more software modules, up from 63% in the prior year. That means customers are spending more over time, evidencing the stickiness of its platform. As a result, revenue rose 66% to $1.5 billion, and free cash flow jumped 51% to $441 million.
Going forward, CrowdStrike has plenty of room to grow. Management put CrowdStrike's market opportunity at $67 billion by 2024, but it believes products in the development pipeline could push that figure to $116 billion by 2025. On that note, CrowdStrike just introduced the industry's first fully managed identity threat protection service, a particularly timely product given that 80% of cyberattacks use identity-based techniques to compromise legitimate credentials. With so much momentum behind CrowdStrike's business, this growth stock looks like a rewarding long-term investment.
2. Zscaler
Traditional corporate networks rely on a hub-and-spoke model to protect sensitive data and applications. In other words, corporate resources are kept in a private data center (the hub), and traffic from branch offices and remote workers (the spokes) is routed through that central hub, where security policies are enforced. However, that approach has a few major drawbacks.
For instance, backhauling traffic through a corporate hub often causes problems with latency, meaning applications run slowly. Likewise, buying and maintaining the necessary hardware to enforce security policies on-site is costly and complicated. Finally, many modern applications are now run from the public cloud, meaning employees can bypass on-premise systems. That's where network security specialist Zscaler can help.
Its cloud-based security service edge -- a platform that spans 150 global data centers -- replaces outdated corporate networks, providing fast and secure access to internal resources (and the open internet) from any device or location. Moreover, as the largest security cloud in the world, Zscaler benefits from a strong network effect, because a threat detected in one environment can be blocked instantly for all clients.
Fueled by that edge, Gartner has recognized Zscaler as an industry leader for 11 consecutive years, and the company is growing like wildfire. Revenue rose 60% to $859.6 million over the past year, and free cash flow soared 145% to $196 million. Better yet, its remaining performance obligation, which serves as a leading indicator of future revenue, jumped 90% to $1.9 billion.
Looking ahead, the future looks bright for Zscaler. The company recently announced the general availability of its Workload Communications product, which extends zero trust security beyond users to applications and services running in the public cloud. With that new product ready for deployment, management puts its addressable market at $72 billion. And given Zscaler's strong competitive position, this growth stock looks like a smart buy.
