Hacking the Security Companies' Earnings
All of the security names ($PANW $OKTA $NET $CRWD $FTNT $ZS) add back stock compensation and amortization of intangibles to non-GAAP results but some are more dependent on this practice than others.

Will employees be as willing to accept option in lieu of cash with stock prices down?

What about the ones that are more dependent on using stock as currency in acquisitions to grow?

All of these companies also capitalize commissions and network equipment- but some are more aggressive than others.

We explore all of these issues in our latest Substack. (You can currently see our archive and sign up for free below.)

Sales Acceleration As A Bullish Indicator (Cybersecurity Stocks)
One indicator I've always found useful for portfolio allocation is sales acceleration. Analysts and management often guide declining YoY % sales growth, and in rare cases, the guide doesn't line up with other indicators. When sales accelerate, it can be a powerful catalyst for stock-price action, manifesting in some momentum or a rally.

See the chart here of cybersecurity stocks below:

Old-guard - (Value style)

New Disrupters - (Growth style)
  • $ZS - Zscaler
  • $CRWD - Crowdstrike
  • $S - SentinelOne

Cutting short, old guards have outperformed disrupters/high-growth substantially over the last year. A big variable was the rotation to value from growth, but I also think another factor for substantial outperformance was sales acceleration. One would expect older cybersecurity to coincide with performance against the QQQ. However, stocks like Palo Alto and Fortinet flew past the benchmark delivering serious alpha. Both went from low ~20% YoY growth to ~30% YoY growth over the last few quarters.

Quarterly YoY % growth (top), and 1-yr return (bottom)

The graph above shows some of these relationships. Lines going higher show sales accel across quarters on a YoY basis, and down means deceleration. I'll be the first to mention that this relationship is not perfect, and there are many reasons for the performance discrepancy above - but it's worth thinking about.

If one can find sales acceleration above consensus for a stock or two on one's list, there are mid-term opportunities out there to capitalize on. For a growth stock, it means the future is coming through faster. In many cases, the rally is strong enough to overshoot fundamental rationale and produce outsized returns over the mid-term.

P.S. Using this theory, $OKTA is looking like an interesting candidate at the moment.
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$2.4m follower assets
Short Fortinet | $FTNT
I messed up my trading account quite a bit in Apr due to an unexpected option assignments which took away some of the funds I set aside for trading purpose. took me a couple of days to fixed the issue by closing out a few position to free up cash. I hope no more clowns who got panicky and offload their stocks to me.

Anyway back to a recent short trade on FTNT base on technical.
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Cybersecurity is in the early innings of a long run!
The market Cap of cybersecurity companies has increased 4 times in the last 5 years.

Cybersecurity startup funding has increased 3 times in the last year.

Currently, cloud and internet companies are the biggest spenders on cybersecurity, this is just the beginning, the opportunity is incredibly huge.

Big spenders prefer cybersecurity platforms as compared to one-trick products to solve all their problems with one platform.

What are some of your favorite cybersecurity names?
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That's some crazy growth!

Okta and Crowdstrike are my favorites at the moment.

But I can also tell you my least favorite: FireEye $FEYE

If you've ever looked into them, I'd be curious to hear your thoughts on why they've done so poorly.

(They recently rebranded and changed their name to 'Mandiant' and changed their ticker to $MNDT)
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Upcoming Earnings Calendar (Jan 31st- Feb 4th)
Hey guys!

Here's the earnings calendar for next week! Here's what I'm interested in:

  • $XOM - Insights on the global oil market.
  • $GOOG - Strength of the digital ad market + growth of YouTube (since $NFLX slowed down).
  • $FB - Comments on their strategy to monetize Whatsapp (I don't expect any, but one can hope).
  • $SPOT - They recently expanded to other markets, so maybe they can maintain accelerated growth, unlike Netflix.
  • $AMZN - AWS and Advertising segment growth + impact of the increase in 3P fees.

What are you looking forward to next week?

If you'd like an easier way to track earnings dates, you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.





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Francis's avatar
$103.5m follower assets
Cybersecurity Industry Breakdown: One of my focus for 2022 and Q4 Earnings Report
This is a breakdown of the entire security industry:

The most popular sectors are Cloud Security and Endpoint protection security.

I am looking forward to the reports for each of these players within each category to extrapolate which sectors will grow the fastest.

Key companies to watch: $NET $CRWD $S $FTNT $ZS $PANW $MSFT $PLTR

Hope this breakdown helps people!
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Thanks for the breakdown! From an enterprise client standpoint, maybe even from a smaller sized business, one would think they wouldn't want three different security products, they would prefer one that has what they really need and covers the other service areas as adjacent service offerings?

When I try and analyse stocks in the space, I am always trying to think through this. Yes some of these services are 'mission critical' and attract higher spending than the rest, but would you rather pick the one that is the best in a specific cybersec offering, or maybe rank them based on how good all of their offerings are and choose the one which is okay in most of them?
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Don Irwin's avatar
$6.9m follower assets
Long $FTNT - holding strong post-earnings. Basing in the $320-350. Any drop into the $300-320 range is a buying opportunity!
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Don Irwin's avatar
$6.9m follower assets
KeyBanc adjusts price target on $FTNT to $370 from $324, keeps overweight (outperform) rating. Keep on climbing!
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