OKTA, ZS, SAIL, and Others

The below-linked article from MarketWatch provides a good overview of the cybersecurity industry. (https://www.marketwatch.com/story/a-year-after-equifax-cyber…) Gartner cybersecurity spending estimates: “Worldwide spending on information security products and services will reach more than $114 billion in 2018, an increase of 12.4 percent from last year, according to the latest forecast from Gartner, Inc. In 2019, the market is forecast to grow 8.7 percent to $124 billion.” (https://www.gartner.com/en/newsroom/press-releases/2018-08-1…)

From the MarketWatch article:
“the biggest headache for executives in charge of protecting company data has to do with choices — as in, way too many of them.”
“To get an idea of how many companies are pitching solutions to CISOs, more than 600 exhibited at the RSA Conference, one of the cybersecurity sector’s biggest annual conferences”
The number of choices is a headache for me too as I try to invest in this highly fragmented $100 billion industry. Where do the many cybersecurity names mentioned on this board (particularly OKTA and ZS) fit into the cybersecurity industry?
Magic Quadrants
As many readers already know, the Gartner Magic Quadrant positions a company in its market segment in terms of its ability to execute and completeness of vision. Several of the companies mentioned on this board provide a magic quadrant on their website. My review of those magic quadrants follows:

  1. OKTA is one of five leaders among 15 firms in Access Management, Worldwide.
  2. ZS is one of two leaders among 11 firms in Secure Web Gateways.
  3. SAIL is one of six leaders among 15 firms in Identity Governance and Administration.
  4. IMPV is one of two leaders among 12 firms in Web Application Firewalls. (On October 10, 2018, IMPV agreed to be acquired by private equity firm Thoma Bravo for about $2.1 billion. I estimate this price was 6x TTM revenue.)
  5. PFPT is one of five leaders among 14 firms in Enterprise Information Archiving.
  6. SPLK/FEYE and FTNT. SPLK is one of four leaders among 19 firms in Security Information and Event Management. FEYE and FTNT are two of 10 niche players among the 19 firms in this market segment.
  7. NTNX is one of four leaders among 12 firms in Hyperconverged Infrastructure.
    PANW and VRNS, I was unable to find a magic quadrant for these two firms.


  1. The cybersecurity industry is highly fragmented and highly competitive. Something like 600 firms are involved in cybersecurity. According to Jay Chaudhry, CEO of ZS, “There’s no room for all of these companies out there.”
  2. Although most of the companies noted above are leaders in their market segment as defined by Gartner, they each have at least 10 competitors.
  3. It seems hard to build a competitive moat in this industry. A company’s product can, of course, become quickly outmoded by new technology or at least mimicked by a competitor.
  4. Valuation in this industry is a puzzle to me. Sometimes I think the prices already have some sort of takeover premium embedded in them.
    My Approach
    Every Motley Fool recommendation ends with,” The single most important factor in a company’s success is the team leading the company.” I’m long OKTA and ZS in part because I like the managements’ backgrounds. I also own the HACK and CIBR ETF’s. SPLK and NTNX are on my list for further review.
    Bet the jockey because the cybersecurity industry is too darn complicated and competitive.