Cybersecurity is arguably more important today than it ever has been. Companies are rapidly shifting their operations online using cloud computing technology, which helps them do business more efficiently and connects their teams across geographical borders.
But this comes with a downside: The more reliance that companies place on the cloud, the larger the attack surface grows, and the more vulnerable they are -- unless they're adequately protected.
It's the main reason that companies' chief information officers have said cybersecurity is the last expense they would trim even in a recession, according to a survey by investment bank Morgan Stanley.
That's an opportunity for investors. Here are two companies delivering blistering results despite challenging economic conditions.
1. SentinelOne: artificially intelligent security
SentinelOne (S 1.06%) is one of the fastest-growing cybersecurity players in the industry. Its success is owed to its artificial-intelligence (AI) approach, which allows organizations to automate incident response to reduce the risk of bad actors lingering inside networks. It offers a suite of advanced security tools on its flagship Singularity XDR platform to protect the cloud and all necessary end points.
In the recent second quarter of fiscal 2023 (ended July 31), SentinelOne was protecting 8,600 business customers, a 60% jump compared to the same period last year. But more notably, it had 755 customers spending at least $100,000 per year -- about double the number in the year-ago quarter. It highlights the growing need for cybersecurity among large companies as they continue to execute digital transformations that vastly increase their vulnerability.
As a result, and despite the economic downturn that is crushing the technology sector this year, SentinelOne more than doubled its sales and its annual recurring revenue in the second quarter. It also increased its full-year guidance for 2023, and now expects as much as $417 million in revenue, which would be a 103% increase over fiscal 2022.
SentinelOne isn't profitable just yet because it's investing so heavily in acquiring customers, which is smart given how quickly they're taking up the company's platform. But it's worth noting that SentinelOne recently reported a net revenue retention rate of 137%, meaning existing customers spent 37% more with the company than they did at the same time last year; that is, each customer that joins the platform is growing significantly more valuable to SentinelOne with each passing year.
Its growth has captured the attention of Wall Street analysts. Of the 18 tracked by The Wall Street Journal, 14 have given SentinelOne stock the highest-possible buy rating, and four are neutral. Its stock is down 65% from its all-time high amid the broader tech sector sell-off, so now might be a great time to build a position.
2. Tenable Holdings: The most widely adopted threat-detection solution
Tenable Holdings (TENB -0.50%) owns the Nessus threat-detection and vulnerability-management platform, which is deployed in over 30,000 organizations with 2 million individual downloads. That makes it the most popular tool in the industry. SentinelOne is a turnkey solution, whereas Nessus can be expanded and built upon by customers to fit their specific needs, making it ideal for businesses of all sizes.
Tenable offers a series of industry-specific cybersecurity solutions. These include cloud security, vulnerability management, and zero-trust identification, providing customers with the tools needed to operate in the digital sphere.
The company is seeing a strong increase in its highest-spending customers; the total number of businesses contributing $100,000 or more annually to revenue grew by 27% year over year, to 1,191 in the second quarter of 2022. Although this growth rate was slower than SentinelOne's, for example, it's further proof that the entire cybersecurity industry is seeing a bump in the number of large customers requiring advanced protection.
Tenable also recently held firm on its guidance suggesting it will deliver $676 million in revenue for the 2022 full year, which would be a 25% jump from last year. It would be an acceleration compared to the 23% pace it grew revenue in 2021 (from 2020). The economic downturn apparently isn't slowing Tenable down.
Like SentinelOne, Tenable has the overwhelming support of Wall Street. Analysts have a consensus buy rating on its stock (the highest-possible rating), with not a single one of the 15 tracked by The Wall Street Journal recommending selling. Since it's currently down 41% from its all-time high, this is investor's chance to buy into a quality company that should remain strong even in the face of a challenging economy.
