Cybersecurity firms’ earnings set to benefit from growing threat of hacks

By Samrhitha A and Vansh Agarwal

(Reuters) – Top U.S. cybersecurity companies are expected to report another quarter of strong growth as high-profile hacks and a shift in client preference for bigger players with better integrated offerings help support their businesses in a turbulent economy.

Palo Alto Networks (NASDAQ:), the largest player in the space by market share and valuation, will kick off sector earnings on Tuesday with what analysts polled by Refinitiv estimate to be a near 24% increase in quarterly revenue.

That compares with growth of almost 26% in the prior quarter and 29% a year earlier, underscoring the resilience in demand for the services, seen as essential despite a wider tech spending slowdown.

“Cybersecurity has become more crucial than ever due to the rapid digital transformation taking place across industries,” said Akshara Bassi, an analyst at Counterpoint Research.

More frequent cases of security threats have also boosted demand. In recent months, Western Digital (NASDAQ:) and the U.S. Transportation Department faced breaches that exposed the information of the memory chipmaker’s customers and 237,000 U.S. government employees.

Worldwide spending on cybersecurity solutions is expected to rise 12.1% to hit $219 billion in 2023, according to data from market analytics firm International Data Corporation.

Analysts said enterprise customers were also consolidating their cybersecurity software vendors in a bid to reduce the complexity of their operations and safeguard themselves from attacks.

Vendors that are a one-stop shop for cybersecurity solutions help their clients analyze security data better as well as integrate a variety of applications, optimize costs and improve risk management.

Top cybersecurity providers Palo Alto Networks, CrowdStrike Holdings (NASDAQ:) and Fortinet (NASDAQ:) Inc, which offer a range of services including cloud and identity protection, are set to benefit from the consolidation trend, said D.A. Davidson analyst Rudy Kessinger.

CrowdStrike and ZScaler Inc are expected to report revenue growth of 39% and 45% when they report earnings on May 31 and June 1, respectively.

Check Point Software Technologies (NASDAQ:) and Fortinet Inc reported upbeat results earlier this month as demand for firewall and cloud security products held strong.