In today’s digital age, security has come to refer increasingly to the protection of online assets – rather than physical ones. 100 years ago companies mainly concerned their security with the protection of their offices, equipment and paper documents. In 2022, however, companies are keen to safeguard their software, cloud-based data storage and online financial transactions. This is where cybersecurity steps in. Below, our investment team at Bure Valley Group offers a 2022 industry report into this exciting, growing space. This includes key information for investors such as market size, key players, new entrants, global trends and more.
The global cybersecurity market in 2022
Cybersecurity continues to make powerful strides forwards across the world with regards to both innovation and growth in 2022. Despite the challenges from COVID-19, market capitalisation grew from $218bn in 2021 to a projected $239bn in 2022. This upward trend is expected to continue in the years ahead, potentially reaching over $345bn in 2026 (representing a CAGR of 14.5%). Other key segments which link deeply into cybersecurity are also on the rise – including the Internet of Things (IoT), artificial intelligence (AI) and machine learning – adding further fuel to this growth. Machine learning innovations, for instance, are proving to be a big boost to the outlier detection solutions offered by many cybersecurity providers.
The cybersecurity space continues to feature large technology companies with well-known brands. Cisco – provider of networking hardware, software and telecommunications equipment – is perhaps the most prominent amongst them, accounting for 9.1% of global market share in 2020. Palo Alto Networks and Fortinet follow as close rivals, boasting 7.8% and 5.9% market share, respectively. Cisco’s share price has risen 75% over the last 5 years and has also shown strong margins of at least 60%, healthy free cashflow and impressive return on invested capital (ROIC) averaging at 15.7%. Whilst past returns do not guarantee future results, the outlook for the industry as a whole (at the time of writing) is an encouraging tailwind for investors.
Trends in 2022
Many investors will be aware that COVID-19 has exacerbated cybersecurity threats as more people have been working from home, online. Perhaps networks are more vulnerable because fewer employees have been logging onto company applications from within the office, using a private network and company hardware (checked by the IT department). Instead, more people have been logging in using personal computers on less secure WiFi connections – perhaps leading to more interceptions of passwords and other sensitive information sent by workers using their browser.
Hackers have also targeted popular video conferencing platforms as companies held their meetings online. COVID-19- themed lures have also featured heavily in the distribution of phishing and malware (e.g. trying to trick email recipients to click on a link to a fraudulent, claiming to offer government financial support). These increased pressures have led to greater need for cybersecurity solutions which can help address the problem.
Global demand for more cloud-based services is also driving the need for cybersecurity. Today, for instance, many companies house customer data on cloud-based platforms such as Google Drive or Microsoft OneDrive. Many of these platforms need to integrate with other applications using an API or other solutions. These web-based networks can become intricate and complex, leading to greater efficiencies and cost savings – but also, potentially, more weak points that can be exploited by malicious actors and malware.
With so many niche areas of cybersecurity and multiple threats, it is hardly surprising that it has a thriving startup scene. Early stage companies are emerging in countries such as the US, Israel and – of course – the UK (which had a record year at £8.9bn in 2021). The UK now has 50,000 people employed in cybersecurity, and the number of UK cybersecurity businesses in operation increased 21% since 2021 (bringing the total to 1,483) – despite the challenges posed by the global pandemic.
Over half of the UK’s cybersecurity firms are now based outside of London and the South East. One interesting area has been the rising involvement of these firms in helping the NHS in its fight against COVID-19. For instance, SureCert proved hugely successful in assisting with the rapid deployment of Covid volunteers via its background check solutions. Another interesting case is Quorum Cyber, which has provided Security Operation Centre and Incident Response capabilities to local authorities and the NHS.
The road ahead
Whilst the overall investment outlook for cybersecurity is encouraging, let’s not forget that the market landscape is fragmented and highly competitive. Due diligence is required to sift through the vast range of startup investment opportunities and identify portfolio candidates with strong prospects and fundamentals. Interestingly, the Asia Pacific region is projected to experience a high level of market growth in the coming years. This is partly due to changing demographics with the middle classes in large nations like India and China expected to grow considerably. This is likely to accompany rising demand for more digital devices, services and applications needing security solutions. India, in particular, is reporting a rise in cybercrime registrations – now ranking 5th in the world for DNS attacks. This will almost certainly drive demand for more cybersecurity solutions in the years to come.
If you are interested in expanding your portfolio into these kinds of exciting spheres of investing, then we invite you to get in touch with us here at Bure Valley and to consider joining our exclusive investor network:
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