The transition from analog to digital has forced all companies to embrace technology. The opportunity for investors is that most corporations are failing to secure their data.
In a financial filing on Thursday, executives at T-Mobile (TMUS) acknowledged that 37 million customers accounts have been hacked. This is the eighth security breach since 2018.
Investors should consider buying cybersecurity shares, especially CrowdStrike
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Apart from securing customer data, T-Mobile is a wonderful business. The Bellevue, Wash.-based company has amassed 110 million customers, and continually ranks highest in overall satisfaction among U.S. wireless carriers. Its legacy phone business is not the problem.
Like many companies, T-Mobile is having a tough time with digital transformation.
Smartphones and cloud-based software pushed corporations to digitize key infrastructure. While productivity and business opportunities have increased, so too have the challenges. Digital transformation necessarily turned adopters into technology companies. In many cases, they were wholly unprepared for bad actors, like hackers and digital extortionists.
T-Mobile infrastructure was breached in March 2021, exposing 75 million customers accounts, according to a filing with the Securities and Exchange Commission. Hackers infiltrated a third-party email vendor to gain access to T-Mobile servers and proceeded to collect personal information including social security numbers, and other government identification data.
Lapsus$, a United Kingdom-based hacking group, gained access in 2022 to T-Mobile’s internal tools. The cyber thieves attempted to take control of customer phone numbers through digital SIM swaps. If successful, Lapsus$ would have been able to reset credentials for email accounts and cryptocurrency wallets. Sadly, the rate of these attacks is increasing.
A spokesperson for Zurich Insurance Group told the Financial Times in December that cyber-attacks are becoming so common they will soon be uninsurable.
Zurich executives disclosed last week that its network suffered a breach. Hackers compromised a third-party contractor, then gained access to 757,463 current and former customer accounts.
CrowdStrike is uniquely qualified to prevent these invasions. The fast-growing Sunnyvale, Calif.-based company operates a cloud-based platform that collects threat data simultaneously across all devices connected to the client’s network, analyses the information using artificial intelligence, then seamlessly updates all endpoints. Protecting these endpoints is critical to overall network safety. That is where hackers are gaining entry.
Forrester Research
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CrowdStrike shares traded as high as $297 in November 2022, however, it has been all downhill since. Like many growth stocks, Investors focused on CrowdStrike’s high price-to-earnings ratio, and the prospect that growth would slow as the economy entered a recession and corporate coffers dwindled.
Corporations can’t afford not to invest more in cybersecurity. The threat to their new digital businesses is existential.
At a share price of $103.41, the CrowdStrike shares trade at 51.9x forward earnings, and 11.5x sales. Although these ratios may seem dear, the company has gross margins of 73.5%, and sales growth remains strong.CrowdStrike reported in November that third quarter revenues grew to $581 million, up at 52.8% year-over-year. Annual Recurring Revenue increased 54% from a year ago, to $2.34 billion. Of this amount, $198.1 million was net added in Q3.
Investors underestimate the business potential of CrowdStrike because they can’t see the size of the potential marketplace.
T-Mobile, and other corporate clients are good at their underlying businesses, however, they are clearly not spending enough to master the security of their digital networks. Budgets will increase. The threats to the enterprise are it too large, too important.
Companies like CrowdStrike will benefit.
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