Research firm McKinsey & Company predicts cyber attacks will cause a whopping $10.5 trillion in damage per year by 2025, rising 300% from the amount of damage they caused in 2015.
To mitigate risks, McKinsey says the corporate sector should be spending as much as $2 trillion per year on cybersecurity software right now. But there's a problem: Companies are on track to spend just $189 billion in 2023.
That does, however, create a huge opportunity for cybersecurity providers. Tenable (TENB 1.34%) is a leader in vulnerability management, which is a segment of the industry focused on proactive forms of protection. The company is valued at just $4.3 billion as of this writing, and here's why it stands to benefit from the $1.8 trillion gap in corporate cybersecurity spending.
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Cloud adoption triggered a spike in cyber risks
Many years ago, businesses maintained physical servers on-premise to store their data, host their websites, and run their digital applications. That infrastructure could be protected with relatively basic cybersecurity software and a firewall because it had limited exposure to the internet, so outside threats were minimal.
Today, businesses rent computing power from large, centralized data centers instead, which are managed by tech giants like Microsoft and Amazon. It's a practice called cloud computing, and it's very cost-efficient because those data centers serve millions of users, which keeps prices low for everyone.
However, it means businesses are now running most of their operations online in the cloud, so they are exposed to malicious actors 24 hours a day, and those threats could stem from anywhere in the world. McKinsey says highly regulated industries like banking, insurance, and government are migrating to the cloud four times faster than those more lightly regulated. That's driving up the risk of attacks on sensitive data and infrastructure, so the demand for cybersecurity should also surge in lockstep.
Protecting the cloud is complex because it involves securing so many web-based applications, plus user identities, data, and sales channels. Tenable owns the Nessus vulnerability management platform, which has been downloaded more than 2 million times, making it the most widely adopted tool of its kind in the cybersecurity industry. It actively scans devices, operating systems, and cloud networks for vulnerabilities to help businesses spot potential threats before they cause disruption.
Nessus serves as an entry point to Tenable's portfolio of industry-specific cybersecurity platforms. It offers specialized protection for car manufacturers, retailers, financial institutions, and healthcare providers, to name just a few sectors the company serves.
Large organizations are driving Tenable's growth
Tenable just reported its financial results for the recent third quarter of 2023 (ended September 30). It generated $201.5 million in revenue, which represented an increase of 15% compared to the same quarter last year, and it was also above the company's prior forecast of $198 million.
The result prompted Tenable to raise its 2023 full-year revenue guidance from a range of $783 million to $791 million to a range of $789.4 million to $793.4 million.
The company's strong result was underpinned by a 22% increase in the number of customers spending at least $100,000 on Tenable's products per year. There were 1,565 of those customers at the end of the third quarter, and that number continues to grow nicely as larger organizations with more complex cybersecurity needs invest heavily in protection.
Tenable also beat its prior forecast at the bottom line. Its non-GAAP (adjusted) net income (profit) came in at $27.7 million, well above the $22.5 million it expected. The company carefully managed costs lately amid the challenging economic climate, with third-quarter operating expenses rising just 9.6% year over year. Considering revenue grew by 15%, that boosted Tenable's non-GAAP profit.
Why Tenable stock is a buy now
Despite managing costs, Tenable has still invested in growing its product portfolio. The company launched Tenable One in October last year, which unifies some of its best products onto one platform. In August this year, it released an artificial intelligence (AI) tool for Tenable One called ExposureAI. It's designed to enhance the power of cybersecurity managers by accelerating how they find and respond to attacks.
ExposureAI is basically a hyperintelligent virtual assistant with knowledge derived from 60 billion exposure events. Therefore, it knows more than any team of human experts, and it can call upon that information instantly.
AI is going to play a crucial role in minimizing the damage from cyberattacks thanks to its ability to identify threats and respond immediately. But over the long term, there is no avoiding the fact that businesses need to invest more money in protection. After all, if McKinsey's estimates are correct, it's going to be far cheaper to pay for cybersecurity software than it will be to endure a data breach or cyberattack!
Tenable is one of the most important providers in the industry, and investors might do well to own its stock for the years ahead.
