Investidea: CyberArk Software, because the cyber ark

Investidea: CyberArk Software, because the cyber ark

Today we have a speculative idea: take shares in Israeli cybersecurity company CyberArk Software (NASDAQ: CYBR), in order to capitalize on their rebound after the fall.

Growth potential and validity: 16% behind 12 Months; 10% per annum during 15 years.

Why stocks can go up: the company's business is promising, and stocks have recently fallen.

How do we act: we take shares now by 170,00 $.

When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.

No guarantees

Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.

And what is there with the author's forecasts

Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.

So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.

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Investment editorial office

What the company makes money on

CYBR is an Israeli company, which produces software in the field of cybersecurity. The company specializes in protecting access to valuable data in the corporate sector. The principle of operation of this software can be studied in a boring, but informative video - and in the same place, company blog, study the technical specifications of its programs.

Or you can read the company's annual report., where the technical side of the CYBR programs is described well.

IN 2020 year, the company began the transition from providing services on demand to a subscription business model. So let's take a look at her business based on her latest quarterly report., including information for the past 9 Months: this source of information is more relevant for us now than a report on 2020 year.

But there, where necessary, for example, in the case of analyzing the geography of a company's sales or other types of information, which are not in the latest quarterly report, we will refer to the company's annual report for 2020 year.

According to her latest report, earnings for the past 9 months by segment is divided as follows.

Subscription — 24,76%. This is company software., available as in the cloud services of CYBR itself, and on the servers of its clients. Segment gross margin — 79,66% from its proceeds.

Permanent licenses — 21,91%. This is a sale of the right to permanently use the CYBR software without time limit. CYBR is gradually transitioning to a subscription business model, so the share of this segment will further decrease. Segment gross margin — 96,21% from its proceeds.

Maintenance and professional services — 53,33%. Maintenance services are software updates, bug fixes and, actually, technical support. These services are provided to both subscribers of the company, so and so, who bought the permanent license. Professional services are the installation and optimization of programs, as well as education personnel at the enterprises of the company's clients. Segment gross margin — 74,95% from its proceeds.

Revenue by country and region:

1. USA - 53,1%.
2. Europe, Middle East and Africa - 30,6%.
3. Unnamed countries and regions - 16,3%.

According to the company's presentation, the approximate composition of its customers by industry based on the analysis of those, who buys subscriptions and licenses, looks like that:

1. Banking and finance - 24%.
2. Production — 12%.
3. Government - 8%.
4. Housing and communal services - 8%.
5. IT — 8%.
6. Healthcare — 7%.
7. Retail and wholesale - 7%.
8. Insurance - 6%.
9. Telecoms - 5%.
10. Professional Services - 4%.
11. Pharmaceutical companies - 4%.
12. Other - 4%.
13. Transport and travel — 3%.

The company is unprofitable due to huge spending on marketing.

Arguments in favor of the company

Fell down. Since the beginning of November, stocks have fallen heavily for no particular reason.: with 198 to 170,25 $. This gives us the opportunity to pick up stocks now in anticipation of a rebound..

It all makes sense. The company has the same main advantages., like all her colleagues in the field of cybersecurity.

Firstly, promising sector guarantees revenue growth. The escalation of tension in the virtual space especially helps here..

Secondly, halo of prospects will attract retail investors and will allow pumping up the issuer's quotes, because the company is bright and shiny. Moreover, CYBR does not have a very large capitalization, making it easier, - Total 6,77 billion dollars.

Thirdly, the importance of cybersecurity to the modern economy contributes to the “special attitude” of investors to the sector. On the example of Tesla, we have already seen, that investors tend to pump up strategically important projects without regard to their commercial component. Cybersecurity will be even more important than electric cars: without adequate protection, critical technology infrastructure is too vulnerable to attackers.

So CYBR's unprofitability does not look like a big problem.: most companies in the sector are unprofitable, but their prices are rising. It cannot be otherwise - otherwise there would not be such monstrously bloated companies., as SentinelOne. After all, if the quotes of such companies do not grow, then money will not be invested in this area and the necessary specialists will not be trained there. And if there are no specialists, then someday there will be a massive hack, who will throw the world back, in the dark ages, as in one of the finals of the first game from the Deus Ex series.

So investors pumped up, inflate and will continue to inflate shares of cybersecurity service providers, even if these companies never turn a profit.

Think, that the inevitable emergence of news about major hacks in the corporate sector will contribute to the growth of both demand for the company's services, and her quotes.

Can buy. 73% The company's revenue is revolving - subscriptions and renewals of current service contracts, - what makes her business quite stable. Combined with a small cap, this could attract a larger buyer to the company..

What can get in the way

High cost. Company P / S — 13,46, and at the same time it is profitable. So,, her quotes will shake - especially now, when everyone expects a rise in the cost of loans. Also unprofitable means, that bankruptcy is always a real prospect.

Not there. According to the company's annual report for 2020 year, 65% its sales are accounted for by intermediaries: resellers, system integrators, IT companies. A change in relationship with one of them could negatively impact CYBR's reporting.

Near East. The company is not just Israeli - located in Israel 2/3 company assets. So CYBR could easily become the target of harassment by ESG investors amid another aggravation of the situation with the Palestinians..

What's the bottom line?

Shares can be taken now by 170,00 $. And then there are two options:

1. wait for growth to 198 $. Think, we can reach this level in the next 12 Months;
2. keep shares next 15 years, to see, how the company will become a giant in its industry. Or go bankrupt, trying to do it.

But remember that, that the idea is speculative, and don't take these shares, if you are not ready to tolerate volatility.