Market fluctuations cause cybersecurity stocks to drop 4-7%, creating buying opportunities for savvy investors despite fears surrounding Trump's new tariff policies.
• Tariff impacts vary across cybersecurity companies—hardware manufacturers like Palo Alto and Fortinet face direct challenges with 54% tariffs on Chinese-made equipment
• Current tariffs differ from historical ones as they function more as negotiation tactics than revenue generation mechanisms
• Despite the current sell-off, cybersecurity stocks show remarkable resilience with CrowdStrike up 242%, CyberArk 162%, and Palo Alto 128% since January 2023
• The entire cybersecurity industry appears to be "for sale" with many funded companies selling for less than their investment capital
• South Korea is emerging as a potential cybersecurity innovation hub, actively working to replicate Israel's success though facing challenges breaking into the US market
• When researching potential acquisitions, look for unfunded companies 10-15 years old with flat or steadily growing headcount as indicators of stable profitability
Check out IT Harvest for research tools that can help identify potential acquisition targets in the cybersecurity space, with filters for headcount, growth rates, and funding levels.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Palo Alto is down, CrowdStrike's down and
everybody's down by like 7%, 4%,so nothing to balk at.
They're descending, I wouldn'tsay at a rapid pace or at a
rapid rate, but they are goingdown, which means some of us are
going shopping.
But I would think thatcybersecurity companies
(00:20):
shouldn't be so concerned aboutthe tariffs.
In your view, what are thereasons for the downward moves?
Speaker 2 (00:29):
Yeah.
So first of all, you know, whenthe market gets spooked, all
stocks suffer, right?
So it's not necessarily thatpeople are looking at Zscaler or
Palo Alto and going the tariffsare going to hurt them in some
way, increase their costs.
You know which probably won't,except in Palo Alto.
(00:52):
You know manufacturers, a lotof hardware in China, so there's
54% tariffs now on all thehardware.
But obviously they have such abig market but it's not going to
change the price of the productvery much to people.
Same with Fortinet.
All their gear is made in Chinaas well, so that's some direct
impact.
But what we're really seeing isthe market.
(01:13):
Knowing history, knowing thattariffs are stupid, no matter
how you cut them, even when it'soh, you're dumping products
into our market at low cost.
So we're going to raise thoseprices by imposing tariffs.
That's stupid too right.
If China wants to give us stuffbelow cost, we should take that
(01:35):
right.
That's good for our economy.
Bad for our local industry.
That's competing with them, ofcourse.
But hey, you know we don'tmanufacture computers in the
United States and we don'tmanufacture everything else that
they make here in the United.
Speaker 1 (01:50):
States, and the consumer doesn't care where it's
manufactured.
They don't even care whatthey're.
Yes, they shouldn't right?
Yeah?
Speaker 2 (01:55):
You know, if you're a globalist of some form, then
yeah, you shouldn't care.
You want the best quality.
And you know Adam Smith saidyou know that's why you should
have separation of duties kindof thing, where the best
manufacturer of X should produceall of X, so that everybody
gets the best product.
Speaker 1 (02:17):
So collective panic, that's your main reason.
Collective panic.
Speaker 2 (02:22):
If tariffs are being imposed, there is going to be a
recession, and the last twotimes that we did this, the
recessions were drastic, right,so I think it was 1988 and 1930.
(02:45):
Depression after Smoot-Hollywas imposed on just 2,000
different things.
This, of course, what we'reseeing right now isn't a tariff
on specific things, it's atariff on countries, right, so
it's punitive tariffs and it'scalculated with the stupidest
formula ever, right tariffs?
(03:06):
And it's calculated with thestupidest formula ever, right?
It's like the balance of tradedivided by how much exports they
have to the US, and that's howmuch, supposedly, they're
hurting us, which is ridiculous.
It doesn't work that way.
And then charging them halfthat in retaliatory tariffs,
it's gone.
There's, you know, the island ofReunion, you know, which is a
French territory in the IndianOcean, a population of 800,000
(03:29):
people.
It's got what?
A 41% tariff.
And I've no idea what we importfrom Reunion.
Beautiful little island,beautiful people and this odd
tariff, right?
So just the paperwork and theclogs at our borders as we
attempt to determine wheresomething comes from and whether
(03:51):
a tariff is due, and then whoto.
To the next, there's a newtariff.
What about all the stuff that'son ships and trucks?
Who pays that tariff?
Do the ships turn around?
Do they call home and say hey,you know, we've got a crate in
(04:14):
the back of the ship here andyou're from Martorius or Reunion
and you owe a 41% tariff tosomebody who even knows what
form to fill out to pay thatright.
It's just like none of this wasthought out, so there's nothing
there in order to make it topull it off right.
(04:34):
It's going to be a cluster.
Speaker 1 (04:39):
The only difference that I can think of and I think
that there's a misconceptionhere, a common misconception the
difference between the tariffstoday and the ones that
everybody's drawing the parallelto, so, the tariffs during the
Great Depression.
There is a significantdifference here, right?
The misconception is that theTrump tariffs are there for
(05:04):
revenue, like the tariffs duringthe Great Depression.
The reason that was given wasto increase revenue.
They were like if everybodypays tariffs, we're going to
increase revenue.
Of course, that didn't work atall for all the reasons that you
just said.
You're carving into the profitsof these foreign countries
which our local domestic peopleare going to now pick up, and
(05:30):
then obviously, that gets put onthe backs of the consumers,
which is why everybody hates theTrump tariffs, because they're
like it's not going to increaserevenue, it's going to burden
the consumers, it's going topiss off our allies and our
partners and everybody thatwe're doing business with.
But I'm going to play devil'sadvocate, right, everybody is
shitting on the tariffs.
I'm going to play devil'sadvocate here and say maybe at
(05:51):
least the reason that Trumphimself is giving is not that
the tariffs will increaserevenue, is that it would be a
lever that you can pull right.
So Vietnam immediately got onthe phone.
I think the Philippines alsoimmediately got on the phone and
said hey, we don't want 10%tariffs.
So the Trump administration goeswell, what are you going to do
(06:14):
to get those tariffs removed?
And so then they're able tonegotiate better trade deals by
taking the tariffs away.
So, instead of not havingtariffs and incentivizing
companies or countries orwhoever to do business with us,
you're putting them in a worldof pain.
(06:34):
You're sticking your stilettoheel into their rib cage and
then you're saying say uncle,say uncle, do what we want you
to say, what we want you to do,and then we'll take the stiletto
heel out.
And so that's a negotiatingtactic, one that is brutal.
And I'm not saying that Inecessarily agree with it.
I don't even understand half ofthis stuff.
(06:55):
So whether I agree with it ornot, is is, is not, it doesn't
matter, um, but I, I'm.
I hear everyone pointing thefinger towards the revenue model
being just asinine and is notgoing to work.
When really, over here, if youkind of shift your gaze a little
(07:15):
bit in your perspective and youlook at it and focus into the
tariffs as a negotiating tactic,maybe that changes a little bit
.
What say you?
Speaker 2 (07:28):
Yeah, I'll buy that because it's very mafioso-like
and Trump has always admired themafia in New York City, so you
learn that you know at their.
Speaker 1 (07:39):
You give them the squeeze and then you take the
squeeze off.
Speaker 2 (07:43):
It's a protection racket.
Of course.
It's illegal to do that.
You're playing with fire.
It would be, you know, if Trumpwere first of all.
If there's something we neededfrom all these countries, then
we.
You know this is a good lever,but the lever is going to be
(08:03):
what can you do for my family?
That's what Trump's going to bebargaining for.
Trump will literally be able toenrich himself and his family
with government extortionagainst all these countries.
If we think for a second thatTrump has this massive team
inside the US CommerceDepartment ready to negotiate
(08:25):
with you know 100 countries onthese tariffs and get deals from
them, from Maritorius andReunion and a few islands
populated with penguins, we aredelusional, right?
He sent his you know top guy toRussia to basically give away
everything to Russia when theyasked for a ceasefire.
(08:47):
Okay, here you go.
Nothing in return.
So yeah, they're horriblenegotiators Trump is fine at.
You know it's easy to negotiateand win when you're giving away
something the United States hasand you're getting back.
You know, some millions ofdollars spent on your golf
course?
Speaker 1 (09:08):
Yeah, it's like it's a shakedown.
Yeah, it's a shakedown,shakedown.
Yeah.
And if you were doing it onbehalf of the country, I think
that's what a lot of the voterswere counting on.
But you are providing a littlebit of a different perspective
here, which I totally respect,that maybe he's doing it not for
(09:28):
the country, but for himselfand perhaps for his family.
There's no proof of that.
Speaker 2 (09:32):
There's no proof that he's ever done anything for his
country.
Well, there's no chance he hadbone spurs.
Speaker 1 (09:40):
Right, yeah, yeah, he didn't.
He didn it.
But then when you look at thealternative I don't want to get
into the politics of it, butthere are alternatives and I
don't think that the Bidenfamily necessarily like it'll be
really hard for us to provethat they were doing anything on
behalf of the country, at leastnot something.
(10:00):
At least that could be a twoferthat could benefit the country
and also benefit the Bidenfamily.
Speaker 2 (10:07):
The last time the stock market was crashed was the
last time Trump was in officeand the distribution of vaccines
were all under the Bidenadministration.
And I'm not going Bidenpersonally, I'm going the
Democratic apparatus thatwrested control from the Trump
regime and was in place to offera little sanity in how things
(10:29):
work, and we had that for fouryears and now we don't have it
anymore Again and we're backright to square one.
Right, the stock market haddropped 50% by the time Biden
was inaugurated and he it backnow, mind you, with some rather
you know astonishing things.
He pumped $2 trillion into theeconomy and barely impacted
(10:53):
inflation.
I was just totally shocked.
I said, maybe that's the answer.
Just pay everybody a livingwage today.
Obviously it doesn't have animpact on inflation.
It's like we had to throw outthe textbooks because we're in a
new, new world.
But right now, if these tariffshold and that becomes the new
(11:13):
way of life, then yeah, beprepared for the stock market to
go way lower.
I just let you know now, I'mhorrible at offering stock
advice.
I'm usually wrong.
Just to let you know now, I'mhorrible at offering stock
advice.
I'm usually wrong, ratherpleased with myself that the day
(11:36):
that there was a Saturday nightwas when Trump imposed tariffs
on Columbia and, you know, byMonday or something, he had
worked out a deal, like you saidright and rescinded that right
Because he's wishy-washy anddoesn't know what the heck he's
doing.
But that was the day that Iwent totally into cash, because
markets do not like instabilityand uncertainty and if a
president can tweet tariffs,which is what he did and cause
(11:58):
them to be imposed, that'suncertainty.
Nobody knows what this bad manis going to do next.
Speaker 1 (12:05):
Markets will crash.
So the other side of the coinhere is okay, collective market
panic.
They are jumping on the panicbandwagon right and, like you
said, we don't know if it's notpanic.
Speaker 2 (12:19):
It's calculated risk aversion.
If it were panic, the marketdrop would be yeah yeah, yeah,
yeah it's just seven percent aday yeah, yeah, you know you
only go, you know, 10 days.
That's close to 70.
Speaker 1 (12:36):
That would be quite a dramatic drop so let's say that
the whether you call it acollective panic or a collective
risk aversion a calculationthat is anticipating that these
tariffs will collectively hurtthe economy, you don't have to
(12:56):
go all that way.
Speaker 2 (12:58):
You're just betting that the rest of the market will
think that okay, so there, yeah, so there's some.
Speaker 1 (13:04):
There is.
Whatever it is the.
The cyber security industryseems to be participating in
that correct right and, becauseof the perceptions, like you
said, it may not be tied toanything real, but just the
perception that the rest of themarket is doing this is causing
them to uh, drop as well.
Well, there is another side tothe coin that could be attached
(13:25):
to tangible assets within thecybersecurity industry and you
mentioned this briefly a littlewhile ago which would be the
supply chain issues.
So if cybersecurity companiesare doing business in China,
hardware is being made in China,vietnam, other Asian countries
who are hit by these tariffs,then obviously they're going to
(13:49):
suffer in terms of having topick up the slack right, because
we know that those countriesare not the ones that are going
to pay are going to increasetheir prices.
It's going to be the Americancompanies.
So the Z scalers of the world,the crowd strikes of the world,
who are going to be picking upthe slack there.
So, as these tariffs, or asthese stocks, rather, or the
(14:10):
stock market, continues to drop,what do you think we can expect
to see in terms ofcybersecurity prices, not just
the price of the stock, butbuyers doing business with the Z
scalers of the world?
Are we going to see CISOs, cios, companies paying more than
(14:32):
they were a year ago for thesame products and services?
Speaker 2 (14:36):
No, because demand is going to drop, and so the
ripple effects of course of astock market drop is people get
conservative because the stockmarket sees all and it predicts
recessions.
So a stock market drop predictsa recession, and quite a few of
the big bank analysts arepredicting that for the second
(14:57):
or third quarter or third orfourth quarter.
During a recession, people stopspending money, so they push
out sales cycles.
So people that are consideringZscaler will go well, yeah, our
revenue is down, so we'repushing this off until the next
year.
So everybody's sales cycle getsextended and sales drop, which
(15:18):
leads to drops in stock priceslater on.
But this is the market pricingthat in.
That's what we're looking attoday Two consecutive 7, 8%
drops in Zscaler.
So we're going to live throughthat.
There's no way out of it otherthan a complete, you know,
(15:38):
rescinding of all these sillythings.
Just kidding, you know, let'smove on back to where you go.
And everybody who bought stocktoday is going to think they're
really, really smart becausethey bet bet it on a uh, um, I
can't think of any nice wordsfor it but they bet it on.
They bet on Trump reversinghimself.
Yeah.
Speaker 1 (15:59):
Trump reversing himself?
Yeah, or at least they bet onthe market not being as
concerned about the decisions inthe future, which seems to me
pretty unlikely unless somethingdrastically changes with the
tariffs, the market is assumingthat these will be removed
before they're implemented.
Do you think that that's pricedin the sell-off?
Speaker 2 (16:22):
Priced in the sell-off.
That's why the sell-off's onlybeen 14% to 20% so far.
It would be 50% to 60%.
If it thought this was acalculated, both houses of
Congress had voted for it andthe people had asked for it,
then, yeah, this would have beenthe worst disaster ever.
Speaker 1 (16:42):
So the fact that it's up to the whim of one person
who is pretty volatile in histhinking and dealings may be
what's causing the problem, butalso not making it as bad as it
possibly is.
Speaker 2 (16:58):
The exact same way that Trump got elected.
You talk to a lot of people nowwho say they voted for him and
they say I didn't think he wouldactually do this Right.
Project 2025 was published andwe're just following that
playbook right now.
Most people who voted for himdidn't think he'd do that, and
that happens in every election,every single one.
Speaker 1 (17:18):
Well, he did make it pretty clear do that and that
happens in every election, everysingle one.
Well, he did make it prettyclear.
He said the most beautiful wordin the dictionary is tariff.
Yep, he did, I mean.
To me there wasn't any clearerindication that he was going to
do this than that, yeah, and yethere he does.
Speaker 2 (17:34):
So as a sense of perspective, though, I've been
tracking since January of 2023,so two years now.
I've been tracking the topcybersecurity stocks because I
called that day as the bottom ofthe market, the crash that had
(17:55):
started in cyber stocks a yearand a half before, in November.
So November was the high forall these stocks.
Only CrowdStrike, I think, hasmade it back to that high, and
since January 6th of 2023, thestocks have been climbing back
up to the point of look at howmuch In two years.
(18:16):
Crowdstrike's up 242% andCyberArk, number two at 162%,
which is surprising.
It's a much smaller company,only worth the market cap of $15
billion today, and Palo Alto,which is the biggest by market
cap, is up 128% from its down.
(18:39):
So they've got a ways to gobefore.
It feels like.
You know you lost your money ifyou were buying way back in
January of 2023.
But you know Palo Alto iscoming up on dipping below that
$100 billion market cap again.
Right, it's the onlycybersecurity company that's
worth that much and it dippedbelow after the disastrous you
(19:03):
know announcement that they'removing to platformization.
Last year it went way down,recovered all this year trying
to make up for that just blunder.
Speaker 1 (19:15):
Heavy PR and marketing, probably pumping
millions of dollars into that.
Speaker 2 (19:20):
I've seen the commercials very pretty
convincing and all the moneythey save by not going to rsa
but showing up at in sanfrancisco and buying out a hotel
at the same time smart that isbrilliant.
Speaker 1 (19:33):
By the way, we can talk about that on a different
episode, but I've written aboutit.
Speaker 2 (19:38):
I think think it's horrible.
Speaker 1 (19:41):
For the industry or horrible for Palo Alto.
Speaker 2 (19:44):
Horrible for the industry and just bad faith from
Palo Alto.
They're not a scrappy littlestartup that gets to say ew, rsa
is extorting money from us andwon't let us use the hotels,
blah, blah.
So we're going to punish themby not showing up.
They're the biggest vendor inthe space.
Therefore, they represent theentire space and they should
(20:05):
support the annual get-togetherof the entire industry in one
place.
They should be supporting that.
Speaker 1 (20:14):
Fair enough, fair enough.
Speaker 2 (20:15):
Yeah, and they shouldn't leech off of it.
If they do decide to boycott it, they should just not send
anybody there.
But no, to show up and say youknow what?
All those people that RSA gotthere in the first place, let's
entice them into our hotel andwow them yeah.
Speaker 1 (20:34):
In other words, don't be a dick about it.
Exactly yeah, they didn't haveto be yeah, okay, gotcha
Checkpoint.
Did didn't have to.
They didn't have to be yeah,okay, gotcha Checkpoint did this
in 2003,.
Speaker 2 (20:45):
I think you know.
Gil Schwedt, who's notoriouslycheap, said this is a waste of
our time and money.
We're the leader, we're notgoing to go, and they were back
in three years.
They were back and they'restill there.
Speaker 1 (20:56):
Hmm, hmm.
They took their ball, went homeand realized that it's no fun
playing by themselves, right?
Speaker 2 (21:01):
Exactly, they missed all the fun.
Speaker 1 (21:03):
Yeah, yeah, all right .
So if we're looking at theCrowdStrikes, the CyberArgs, the
Palo Altos, fortinet, zscaler,varonis, sentinelone Checkpoint,
et cetera, et cetera, yourthesis is basically that there's
no reason to panic.
If you bought at the right timeyou bought back in January
(21:32):
especially you don't have anyreason to panic.
You might be a victim of thedip, but it's not erasing gains
in the way that a lot of themedia is probably making it out
to be, at least in the largertech sector when we get to
cybersecurity, the cybersecuritysector.
Not a whole lot of erasure ofprofits here.
Speaker 2 (21:51):
And it will survive better than a Nike right.
Speaker 1 (21:55):
So Nike Right Retail is screwed Right.
Speaker 2 (22:00):
Retail is screwed.
Yeah, retail is screwed.
Nike employs 450,000 people inChina making shoes yeah, so
they're totally screwed.
Speaker 1 (22:08):
They're screwed at least for a couple of years, or
at least a year or two.
I mean, I'm not aprognosticator.
I suck at telling the future.
I don't even know what's goingto happen tomorrow, but I mean
that's going to be really tough,tough.
It's going to take time forcompanies to move back to the us
to hire all these people and Imean, even if it does happen,
it's going to be a very slowrollout yep, yep.
Speaker 2 (22:32):
First we've got to have the whole phase of uh uh
smuggling industry growing up sowe gotta we gotta watch all
that and the crime that goesaround it.
Speaker 1 (22:43):
Oh, yeah, wow, this thing might be yeah, might be
bigger than we even anticipated.
All right, so what othermovements are we seeing in
cybersecurity?
Do you have any good news thatmay have nothing to do with the
tariffs whatsoever.
What do you got?
Speaker 2 (23:00):
Yeah, so it's my perception.
I've only been digging intothis for a couple weeks, but
it's my perception and it feelslike the entire cybersecurity
industry is for sale right now.
So if you're a private equityor a strategic buyer, now's your
chance, because there arefunded companies that are
(23:23):
selling for less than the amountput into them, and this would
be a time to snap up some highpotential cybersecurity
companies.
Speaker 1 (23:35):
Are we talking about pre-IPO companies?
Yeah, we're talking smallpre-IPO companies.
Speaker 2 (23:40):
Yeah, yeah, yeah, we're talking small.
The entire.
You know, last year there were351 acquisitions of
cybersecurity companies.
Only a few of them were at thatlevel of.
There were no IPOs, but therewere plenty of public companies
taken private by Tomo Bravo andthe rest, yeah.
But most of those 351 dealswere probably close to the
(24:02):
average of tech deals, which was47 million for each one.
So most of the companies youknow that we research and talk
about and see on LinkedIn, etcetera, are in that range, right
, 50 to 500 people and, you know, other than the unicorns, most
(24:23):
of them are for sale.
Speaker 1 (24:25):
Very cool.
So how would one go aboutbuying one of these companies or
at least getting their foot inthe door?
Because let's say, I've got,you know, $300,000, $400,000
cash on hand and I'm working foran attractive deal.
Where do I go?
Is there a platform that's this?
Acting as a broker, do I haveto know somebody like whose leg
(24:47):
do I have to hump to get one ofthese deals?
Speaker 2 (24:49):
Well, at that level you're talking about um going to
acquirecom and there are plentyof SAS companies for sale there
that you buy for that much.
That would be a.
You know you'd have to behands-on.
I think You'd have to have thetechnical chops to manage
whatever it is that you justbought.
Not a lot of them arecybersecurity companies, but
(25:15):
some are, and you'd want to buyone that had revenue right, that
had got up to whatever $20,000a month in monthly recurring
revenue.
But if just a few million moreor you pool your $300K with a
bunch of other people and get upto having $3 million available,
then you can start buying somepretty serious cybersecurity
(25:39):
products.
It's pretty cool out there.
Speaker 1 (25:41):
So if I wanted to do a little bit of recon not the
purchase itself, but I wanted todo a little bit of research
could I do that with IT Harvest?
Speaker 2 (25:48):
Yes, I'm glad you asked.
Turns out that's exactly whatour platform is good for.
We do have investment banksdoing just that In recent weeks.
We've decided that we should bedoing that, we've got the data
and everybody else is just Idon't know what they're doing.
Uh, putting up a sign sayingcome to us if you want to sell
your company?
(26:08):
Um, that's what the investmentbanks do, um, but you know, all
you have to do is start talkingto people, um, and our advantage
is you know, we know everybody.
You know everybody in theindustry, so we do know,
everybody we know everybody inthe industry.
Speaker 1 (26:21):
You do know everybody , you know everything that's
popping up.
Everybody is hiding in thenooks and the crannies, those
companies that you've neverheard about, in places that
you've never seen.
Exactly right, what are some ofthe data points that we should
be looking for or looking at?
There are some indicators tohelp us make these kinds of
decisions on what companies thatyou might be potentially
(26:45):
looking to talk to.
Speaker 2 (26:46):
Yeah, great question.
So the approach I take is Ilook for unfunded companies as a
start.
I think there's 1,700 of them,so those are bootstrap, so
they're not going to haveinvestors who are trying to get
their money out of it oranything like that.
(27:06):
I look for their age.
I want them to be, you know, 10to 15 years old, the companies
thinking that the founders mightbe getting tired of you know
the daily grind and willing tosell or join a bigger company
strategically and move on fromthere.
And then I look for flat orsteadily growing headcount.
(27:28):
So if they're flat, you know,for two or three years, it means
they're making money at the twoor three at that level they're
at, or else you know they'd belaying people off so they could
make money.
And if they're growing slightly, it means not only are they
making money but they're makingmore money every year.
So just by tracking headcountyou can see that right away in
(27:49):
the charts.
So that's what I look for whenI'm hunting.
Speaker 1 (27:53):
I know of one such company not the former but the
latter where they laid peopleoff, but it's not because the
result wasn't a decrease inprofit.
It may be a decrease, a slightdecrease, in revenue, but their
profit margin went upsignificantly because, of course
, they have less overhead,because they found a way to
(28:17):
leverage the resources that theyhad in order to increase
production and to reach sectorsthat are pretty large, because,
you know, I don't want to givetoo much away.
You know, shout out to thisperson.
If you know who I'm, if you'relistening to this, you know who
you are uh, the ceo over there.
But it was a pretty smart movefor them and, you know, not in
(28:39):
large public circles, butprivately he's pretty happy
about and sort of short ofboasting that his profit margins
are up.
Speaker 2 (28:50):
If you show profit margins that are growing, then
you should be talking to privateequity, because private equity,
you know, sometimes they havedomain expertise but they really
have financial expertise.
They can turn, you know,basically your profit margins
and your total profits into anumber that you're worth and
they can buy you for that number.
(29:11):
But without any, you know, thedue diligence is going to make
sure you're not lying to themand that you have customers and
you have technology and all therest.
And you have customers and youhave technology and all the rest
.
But not as difficult when theinvestment thesis is if only we
acquired them, cut their costs,laid off 20% of the people, then
it'd be profitable, then we canfund the debt we need to make
(29:32):
the deal happen in the firstplace.
If you got profits, you're aneasy sale to a private equity
company.
If you don't have profit butyou have growth, then you may be
an easy sale to a technologycompany, a strategic buyer.
So maybe it's CrowdStrike orPalo Alto that can see your
growth and see the impact andthe penetration of the market
(29:55):
that you made.
You're going to bring them newcustomers.
Bring them new customers.
You know Palo Alto's.
You know if Palo Alto reallybelieves in what they're doing
as far as platformization, thenall they need is more customers.
They'll take every customer ofa $20,000 solution and they'll
sell them all the rest of thePalo Alto stuff for a million
dollars.
That's the model, even though Ithink it's crazy.
(30:15):
It doesn't work, but that'swhat they're thinking.
Speaker 1 (30:18):
So there'll be strategic buyers of companies
like that, yeah let's say I'mmaking an assumption that since
we talked about the whole Israelthing, I'm not going to beat
that dead horse anymore, wrotean entire research paper on it
which I can make available toanybody.
Just hit me up on LinkedIn,shoot me an email.
Not going to go into detail,but let's assume and you can
(30:40):
correct me if my assumption isright or not that the Israel,
the Israeli market,cybersecurity company market is
somewhat inflated.
Because if everybody's flockingto Israel, then as soon as
there's a startup there, I meanyou want to scoop them up
Because chances are, the talentpool is going to be great.
They're going to have X youknow IDF unit 8200 folks coming
(31:04):
from there.
So they've got cybersecurityand intelligence and code
breaking and all this stuffbaked into their DNA.
So you want to scoop up thoseteams.
Right, whether they're makingmoney or not, you're probably
going to scoop them up, which,in my view, makes them a little
bit inflated.
So juxtapose that against adifferent market that might be
equally as prepared but not aswell known.
(31:27):
Is there some region in theworld where there's a market for
companies that may not be aswell known as the israeli cyber
security companies, but theymight be pumping out some uh
small startups that might beworth something yeah, korea,
korea's um, early, early stages,um, but they are several years
(31:50):
ago they started reaching out toIsrael and trying to create
partnerships and incubators andall the rest.
Speaker 2 (31:56):
So they want to.
You know, it's like a statedgoal is to mimic the Israeli
miracle in cybersecurity.
And you know, of course,fantastic companies, fantastic
technology, really really smartpeople who you know, let's face
it are not very good at doingthe next step in the Israeli
(32:18):
miracle, which is landing in theUnited States and selling here.
That's really difficult for aKorean company.
So it'd make a lot of sense toacquire a Korean company.
It would make a lot of sense toinvest in Korean companies if
you can open doors for them herein the US.
Speaker 1 (32:34):
Yeah, yeah.
Otherwise there are otheroptions.
To set up shop or at least somesort of liaison in K-Town.
Yeah, maybe not a bad idea, butI don't think that that's
happening anytime soon.
Speaker 2 (32:47):
Just hire people, man yeah.
Speaker 1 (32:50):
You know, they do have also a strategic advantage
that they would share withIsrael, which is they require
everyone to join the militaryafter high school and there's
mandatory military service.
If the military and thegovernment were to follow suit
and they were to adopt some ofthe strategies that Israel had
kind of laid out and done there,then they would bake
(33:14):
cybersecurity into the trainingof the military, which to me
seems like a pretty logical dotto connect, but maybe they're a
few years away from that.
Speaker 2 (33:28):
Yeah, because Korea's got one problem.
North Korea, yeah, smallproblem.
And North Korea is really goodat the offensive side of
security.
They have to move into a hotelin China in order to execute
attacks because they don't havereliable internet.
Window hotel in China in orderto execute attacks because they
(33:51):
don't have reliable internet.
But it's unlike Israel, wherenot only is Israel under
constant attack from all sides,right, every single person in
the Middle East wants them todie, so they're very, very
defensive, to the point wherethey also invest a lot in
offensive security.
Speaker 1 (34:07):
Right preemptive strikes.
Speaker 2 (34:08):
Yep, they have hands-on hacking experience when
they come out of the military,and usually I've talked to quite
a few founders who saw whatthey were doing and then came up
with a product to stop themfrom doing it, and that's how
they got started.
Speaker 1 (34:24):
Yeah, so Israel is in itself a red team, blue team
incubator, so they're attackingand defending, whereas korea
they're defending most of thetime.
I don't think they're doing alot of attacking so between the
north and the south, becausethey're separate the red team
and the blue team uh is, theyare incubated and isolated from
(34:48):
the rest of the world.
So they're not attacking anddefending from external forces,
they're just attacking anddefending from themselves.
If you really think of theNorth and the South as somewhat
obviously not the same country,some may disagree.
Kim Jong-un, my little rocketman, might disagree, but maybe
that's preventing them fromgoing global.
Speaker 2 (35:10):
That might have to do with it yeah, I don't know.
Speaker 1 (35:13):
What do I know?
Um, okay, so is there anythingthat you can show in it harvest?
At least, just give me anexample of what would I be
looking for.
What would I look for when I'msearching or doing my research
for, you know, one of thesepotential acquisitions, and just
(35:35):
kind of walk me through some ofthe numbers.
Speaker 2 (35:37):
Okay um, let's look at I'm pretty sure this is what
I want to look at armor blocks.
No, they've been archivedbecause cisco acquired them.
So it's worth looking atheadcount if we have the data.
If you ever see this kind ofheadcount graph, it's because
the company's been acquiredright and, believe it or not,
(35:59):
after the company's acquired,there are always a whole bunch
of stragglers that you knowthey're employed by Cisco, but
they don't change their LinkedInprofiles, and that's typical
insecurity, because but theydon't change their LinkedIn
profiles, and that's typicalinsecurity because techies don't
care about that stuff.
But who else can we look at?
Speaker 1 (36:17):
So, just to be clear, what we're looking at here is a
drop off of the employees orthe headcount After.
Speaker 2 (36:23):
Cisco acquired them.
Speaker 1 (36:25):
That's right.
When Cisco acquired them, theheadcount dropped off.
Okay, okay.
Speaker 2 (36:28):
Yeah, because on that day everybody is excited and
they update their employment toCisco.
Speaker 1 (36:34):
Yeah, now I work at Cisco.
Speaker 2 (36:36):
Exactly, exactly.
If you look at Mandiant who, nomatter how many times I talk to
Google, they say you know thereis no Mandiant anymore, it's
Google Cloud Security.
Yeah, but you know there are1,400 people who claim
employment at Mandiant stillafter all this time.
Speaker 1 (36:58):
So they have the opposite effect.
Where?
Why would that?
I don't know.
Speaker 2 (37:03):
I do not know, I don't know.
I do not know.
You would think you would wantto be a former Googler, because
that implies that if you're atech person, it implies you're
making half a million a year.
So you could demand that you'rea former Fang.
Now you do a startup.
So let's just do this.
We are going to look forcompanies with between 200 and
(37:30):
500 people who have grown let'ssay, 2% so far this year so this
is in 2025 and have taken in atmost $2 million, okay, $2
million, okay.
So if you were a buyer, youcould buy one of these companies
(37:50):
for a multiple of their profits.
You'd have to talk to them andfigure out what that is.
We're going to do the growth.
So my breadcrumbs up hereGreater than 200, less than 500.
Year-to-date growth there are104 companies that match that.
Speaker 1 (38:11):
That fit that criteria.
Okay, Fit that criteria.
Speaker 2 (38:14):
So you can start going through the growth All
these companies are growing.
Speaker 1 (38:18):
They're all hiring.
Go shopping, yeah go shop.
Speaker 2 (38:21):
These are great companies.
Speaker 1 (38:23):
We're window shopping right now.
That's right.
Speaker 2 (38:26):
And, if we can do, a total funding of $2 million on
top of that.
So now there's 31.
So out of those 108, most ofthem got funding right, but
these guys don't have very muchfunding.
So you might want to look at 42Gears and API, security Group,
(38:50):
ib and Threat Intelligence rightis killing it and headquartered
in Singapore.
Speaker 1 (38:56):
Can we look at Group IB and see what their headcount
change was year over year?
Speaker 2 (39:01):
That should be interesting, because you know
they kind of pulled a fast oneon Putin and you know the
company kind of pulled a fastone on Putin and the company
kind of disappeared and thefounder escaped to the West and
then he showed up in Singaporeand all of a sudden the
company's back, so maybe it'llbe, yeah, kind of interesting
what's going on there.
He's doing a little dance.
(39:24):
Yeah, exactly, this is whenthey were disappearing.
All of a sudden they're back.
They're growing.
I don't know what happened here.
This is only a drop of 50people During the tumultuous 23
to 24, they were flat andgrowing.
It's a great, great sign.
Now they just took a big jump.
Now that could be eitherthey've had a funding round to
(39:45):
jump to.
That's almost.
Yeah, that's 110 people.
Speaker 1 (39:52):
So they went up by almost 50%.
So somebody didn't buy the dip.
Speaker 2 (39:56):
Right, that's right, and this could be that they
acquired a team or several teamsor did an acquisitions, but
yeah, they didn't.
They really haven't had verymuch funding at all for a while.
Speaker 1 (40:11):
Yeah, yeah, very cool stuff.
Check out IT Harvest, you mightdo some window shopping and you
might find a new pair of shoesthat you like.
Speaker 2 (40:20):
The trigger is when you hire a new associate for
your private equity firm who'sgot all the financial background
you need and the personality,everything you hired them for,
but they don't know anythingabout cybersecurity.
You give them this one tool andthey have accumulated knowledge
that myself and the whole teamhas put into it for four years.
Speaker 1 (40:40):
Yeah, so you become an industry analyst overnight,
pretty much.
Speaker 2 (40:43):
Yep, totally yeah.
Speaker 1 (40:44):
All right Industry analyst in a box.
Richard Steenan, thanks fordropping by, my friend, it's
always great to talk to you andI know you've got better things
to do today.
On a Friday, if you'relistening to this, this will be
on a Monday, but have a greatweekend.
And how can people find you ifthey want to follow you?
Speaker 2 (41:02):
Yeah, check me out on LinkedIn.
Speaker 1 (41:04):
That's the easiest way People contact me every day
on LinkedIn and I'm always happyto talk All right and listen to
Cybernomics, the full radiobroadcast anywhere.
You can find your podcastsevery Wednesday morning, 7 am,
bright and early.
Thanks for listening.
We'll see you in the next one.
Bye.
Palo Alto is down, CrowdStrike's down and
everybody's down by like 7%, 4%,so nothing to balk at.
They're descending, I wouldn'tsay at a rapid pace or at a
rapid rate, but they are goingdown, which means some of us are
going shopping.
But I would think thatcybersecurity companies
(00:20):
shouldn't be so concerned aboutthe tariffs.
In your view, what are thereasons for the downward moves?
Speaker 2 (00:29):
Yeah.
So first of all, you know, whenthe market gets spooked, all
stocks suffer, right?
So it's not necessarily thatpeople are looking at Zscaler or
Palo Alto and going the tariffsare going to hurt them in some
way, increase their costs.
You know which probably won't,except in Palo Alto.
(00:52):
You know manufacturers, a lotof hardware in China, so there's
54% tariffs now on all thehardware.
But obviously they have such abig market but it's not going to
change the price of the productvery much to people.
Same with Fortinet.
All their gear is made in Chinaas well, so that's some direct
impact.
But what we're really seeing isthe market.
(01:13):
Knowing history, knowing thattariffs are stupid, no matter
how you cut them, even when it'soh, you're dumping products
into our market at low cost.
So we're going to raise thoseprices by imposing tariffs.
That's stupid too right.
If China wants to give us stuffbelow cost, we should take that
(01:35):
right.
That's good for our economy.
Bad for our local industry.
That's competing with them, ofcourse.
But hey, you know we don'tmanufacture computers in the
United States and we don'tmanufacture everything else that
they make here in the United.
Speaker 1 (01:50):
States, and the consumer doesn't care where it's
manufactured.
They don't even care whatthey're.
Yes, they shouldn't right?
Yeah?
Speaker 2 (01:55):
You know, if you're a globalist of some form, then
yeah, you shouldn't care.
You want the best quality.
And you know Adam Smith saidyou know that's why you should
have separation of duties kindof thing, where the best
manufacturer of X should produceall of X, so that everybody
gets the best product.
Speaker 1 (02:17):
So collective panic, that's your main reason.
Collective panic.
Speaker 2 (02:22):
If tariffs are being imposed, there is going to be a
recession, and the last twotimes that we did this, the
recessions were drastic, right,so I think it was 1988 and 1930.
(02:45):
Depression after Smoot-Hollywas imposed on just 2,000
different things.
This, of course, what we'reseeing right now isn't a tariff
on specific things, it's atariff on countries, right, so
it's punitive tariffs and it'scalculated with the stupidest
formula ever, right tariffs?
(03:06):
And it's calculated with thestupidest formula ever, right?
It's like the balance of tradedivided by how much exports they
have to the US, and that's howmuch, supposedly, they're
hurting us, which is ridiculous.
It doesn't work that way.
And then charging them halfthat in retaliatory tariffs,
it's gone.
There's, you know, the island ofReunion, you know, which is a
French territory in the IndianOcean, a population of 800,000
(03:29):
people.
It's got what?
A 41% tariff.
And I've no idea what we importfrom Reunion.
Beautiful little island,beautiful people and this odd
tariff, right?
So just the paperwork and theclogs at our borders as we
attempt to determine wheresomething comes from and whether
(03:51):
a tariff is due, and then whoto.
To the next, there's a newtariff.
What about all the stuff that'son ships and trucks?
Who pays that tariff?
Do the ships turn around?
Do they call home and say hey,you know, we've got a crate in
(04:14):
the back of the ship here andyou're from Martorius or Reunion
and you owe a 41% tariff tosomebody who even knows what
form to fill out to pay thatright.
It's just like none of this wasthought out, so there's nothing
there in order to make it topull it off right.
(04:34):
It's going to be a cluster.
Speaker 1 (04:39):
The only difference that I can think of and I think
that there's a misconceptionhere, a common misconception the
difference between the tariffstoday and the ones that
everybody's drawing the parallelto, so, the tariffs during the
Great Depression.
There is a significantdifference here, right?
The misconception is that theTrump tariffs are there for
(05:04):
revenue, like the tariffs duringthe Great Depression.
The reason that was given wasto increase revenue.
They were like if everybodypays tariffs, we're going to
increase revenue.
Of course, that didn't work atall for all the reasons that you
just said.
You're carving into the profitsof these foreign countries
which our local domestic peopleare going to now pick up, and
(05:30):
then obviously, that gets put onthe backs of the consumers,
which is why everybody hates theTrump tariffs, because they're
like it's not going to increaserevenue, it's going to burden
the consumers, it's going topiss off our allies and our
partners and everybody thatwe're doing business with.
But I'm going to play devil'sadvocate, right, everybody is
shitting on the tariffs.
I'm going to play devil'sadvocate here and say maybe at
(05:51):
least the reason that Trumphimself is giving is not that
the tariffs will increaserevenue, is that it would be a
lever that you can pull right.
So Vietnam immediately got onthe phone.
I think the Philippines alsoimmediately got on the phone and
said hey, we don't want 10%tariffs.
So the Trump administration goeswell, what are you going to do
(06:14):
to get those tariffs removed?
And so then they're able tonegotiate better trade deals by
taking the tariffs away.
So, instead of not havingtariffs and incentivizing
companies or countries orwhoever to do business with us,
you're putting them in a worldof pain.
(06:34):
You're sticking your stilettoheel into their rib cage and
then you're saying say uncle,say uncle, do what we want you
to say, what we want you to do,and then we'll take the stiletto
heel out.
And so that's a negotiatingtactic, one that is brutal.
And I'm not saying that Inecessarily agree with it.
I don't even understand half ofthis stuff.
(06:55):
So whether I agree with it ornot, is is, is not, it doesn't
matter, um, but I, I'm.
I hear everyone pointing thefinger towards the revenue model
being just asinine and is notgoing to work.
When really, over here, if youkind of shift your gaze a little
(07:15):
bit in your perspective and youlook at it and focus into the
tariffs as a negotiating tactic,maybe that changes a little bit
.
What say you?
Speaker 2 (07:28):
Yeah, I'll buy that because it's very mafioso-like
and Trump has always admired themafia in New York City, so you
learn that you know at their.
Speaker 1 (07:39):
You give them the squeeze and then you take the
squeeze off.
Speaker 2 (07:43):
It's a protection racket.
Of course.
It's illegal to do that.
You're playing with fire.
It would be, you know, if Trumpwere first of all.
If there's something we neededfrom all these countries, then
we.
You know this is a good lever,but the lever is going to be
(08:03):
what can you do for my family?
That's what Trump's going to bebargaining for.
Trump will literally be able toenrich himself and his family
with government extortionagainst all these countries.
If we think for a second thatTrump has this massive team
inside the US CommerceDepartment ready to negotiate
(08:25):
with you know 100 countries onthese tariffs and get deals from
them, from Maritorius andReunion and a few islands
populated with penguins, we aredelusional, right?
He sent his you know top guy toRussia to basically give away
everything to Russia when theyasked for a ceasefire.
(08:47):
Okay, here you go.
Nothing in return.
So yeah, they're horriblenegotiators Trump is fine at.
You know it's easy to negotiateand win when you're giving away
something the United States hasand you're getting back.
You know, some millions ofdollars spent on your golf
course?
Speaker 1 (09:08):
Yeah, it's like it's a shakedown.
Yeah, it's a shakedown,shakedown.
Yeah.
And if you were doing it onbehalf of the country, I think
that's what a lot of the voterswere counting on.
But you are providing a littlebit of a different perspective
here, which I totally respect,that maybe he's doing it not for
(09:28):
the country, but for himselfand perhaps for his family.
There's no proof of that.
Speaker 2 (09:32):
There's no proof that he's ever done anything for his
country.
Well, there's no chance he hadbone spurs.
Speaker 1 (09:40):
Right, yeah, yeah, he didn't.
He didn it.
But then when you look at thealternative I don't want to get
into the politics of it, butthere are alternatives and I
don't think that the Bidenfamily necessarily like it'll be
really hard for us to provethat they were doing anything on
behalf of the country, at leastnot something.
(10:00):
At least that could be a twoferthat could benefit the country
and also benefit the Bidenfamily.
Speaker 2 (10:07):
The last time the stock market was crashed was the
last time Trump was in officeand the distribution of vaccines
were all under the Bidenadministration.
And I'm not going Bidenpersonally, I'm going the
Democratic apparatus thatwrested control from the Trump
regime and was in place to offera little sanity in how things
(10:29):
work, and we had that for fouryears and now we don't have it
anymore Again and we're backright to square one.
Right, the stock market haddropped 50% by the time Biden
was inaugurated and he it backnow, mind you, with some rather
you know astonishing things.
He pumped $2 trillion into theeconomy and barely impacted
(10:53):
inflation.
I was just totally shocked.
I said, maybe that's the answer.
Just pay everybody a livingwage today.
Obviously it doesn't have animpact on inflation.
It's like we had to throw outthe textbooks because we're in a
new, new world.
But right now, if these tariffshold and that becomes the new
(11:13):
way of life, then yeah, beprepared for the stock market to
go way lower.
I just let you know now, I'mhorrible at offering stock
advice.
I'm usually wrong.
Just to let you know now, I'mhorrible at offering stock
advice.
I'm usually wrong, ratherpleased with myself that the day
(11:36):
that there was a Saturday nightwas when Trump imposed tariffs
on Columbia and, you know, byMonday or something, he had
worked out a deal, like you saidright and rescinded that right
Because he's wishy-washy anddoesn't know what the heck he's
doing.
But that was the day that Iwent totally into cash, because
markets do not like instabilityand uncertainty and if a
president can tweet tariffs,which is what he did and cause
(11:58):
them to be imposed, that'suncertainty.
Nobody knows what this bad manis going to do next.
Speaker 1 (12:05):
Markets will crash.
So the other side of the coinhere is okay, collective market
panic.
They are jumping on the panicbandwagon right and, like you
said, we don't know if it's notpanic.
Speaker 2 (12:19):
It's calculated risk aversion.
If it were panic, the marketdrop would be yeah yeah, yeah,
yeah it's just seven percent aday yeah, yeah, you know you
only go, you know, 10 days.
That's close to 70.
Speaker 1 (12:36):
That would be quite a dramatic drop so let's say that
the whether you call it acollective panic or a collective
risk aversion a calculationthat is anticipating that these
tariffs will collectively hurtthe economy, you don't have to
(12:56):
go all that way.
Speaker 2 (12:58):
You're just betting that the rest of the market will
think that okay, so there, yeah, so there's some.
Speaker 1 (13:04):
There is.
Whatever it is the.
The cyber security industryseems to be participating in
that correct right and, becauseof the perceptions, like you
said, it may not be tied toanything real, but just the
perception that the rest of themarket is doing this is causing
them to uh, drop as well.
Well, there is another side tothe coin that could be attached
(13:25):
to tangible assets within thecybersecurity industry and you
mentioned this briefly a littlewhile ago which would be the
supply chain issues.
So if cybersecurity companiesare doing business in China,
hardware is being made in China,vietnam, other Asian countries
who are hit by these tariffs,then obviously they're going to
(13:49):
suffer in terms of having topick up the slack right, because
we know that those countriesare not the ones that are going
to pay are going to increasetheir prices.
It's going to be the Americancompanies.
So the Z scalers of the world,the crowd strikes of the world,
who are going to be picking upthe slack there.
So, as these tariffs, or asthese stocks, rather, or the
(14:10):
stock market, continues to drop,what do you think we can expect
to see in terms ofcybersecurity prices, not just
the price of the stock, butbuyers doing business with the Z
scalers of the world?
Are we going to see CISOs, cios, companies paying more than
(14:32):
they were a year ago for thesame products and services?
Speaker 2 (14:36):
No, because demand is going to drop, and so the
ripple effects of course of astock market drop is people get
conservative because the stockmarket sees all and it predicts
recessions.
So a stock market drop predictsa recession, and quite a few of
the big bank analysts arepredicting that for the second
(14:57):
or third quarter or third orfourth quarter.
During a recession, people stopspending money, so they push
out sales cycles.
So people that are consideringZscaler will go well, yeah, our
revenue is down, so we'repushing this off until the next
year.
So everybody's sales cycle getsextended and sales drop, which
(15:18):
leads to drops in stock priceslater on.
But this is the market pricingthat in.
That's what we're looking attoday Two consecutive 7, 8%
drops in Zscaler.
So we're going to live throughthat.
There's no way out of it otherthan a complete, you know,
(15:38):
rescinding of all these sillythings.
Just kidding, you know, let'smove on back to where you go.
And everybody who bought stocktoday is going to think they're
really, really smart becausethey bet bet it on a uh, um, I
can't think of any nice wordsfor it but they bet it on.
They bet on Trump reversinghimself.
Yeah.
Speaker 1 (15:59):
Trump reversing himself?
Yeah, or at least they bet onthe market not being as
concerned about the decisions inthe future, which seems to me
pretty unlikely unless somethingdrastically changes with the
tariffs, the market is assumingthat these will be removed
before they're implemented.
Do you think that that's pricedin the sell-off?
Speaker 2 (16:22):
Priced in the sell-off.
That's why the sell-off's onlybeen 14% to 20% so far.
It would be 50% to 60%.
If it thought this was acalculated, both houses of
Congress had voted for it andthe people had asked for it,
then, yeah, this would have beenthe worst disaster ever.
Speaker 1 (16:42):
So the fact that it's up to the whim of one person
who is pretty volatile in histhinking and dealings may be
what's causing the problem, butalso not making it as bad as it
possibly is.
Speaker 2 (16:58):
The exact same way that Trump got elected.
You talk to a lot of people nowwho say they voted for him and
they say I didn't think he wouldactually do this Right.
Project 2025 was published andwe're just following that
playbook right now.
Most people who voted for himdidn't think he'd do that, and
that happens in every election,every single one.
Speaker 1 (17:18):
Well, he did make it pretty clear do that and that
happens in every election, everysingle one.
Well, he did make it prettyclear.
He said the most beautiful wordin the dictionary is tariff.
Yep, he did, I mean.
To me there wasn't any clearerindication that he was going to
do this than that, yeah, and yethere he does.
Speaker 2 (17:34):
So as a sense of perspective, though, I've been
tracking since January of 2023,so two years now.
I've been tracking the topcybersecurity stocks because I
called that day as the bottom ofthe market, the crash that had
(17:55):
started in cyber stocks a yearand a half before, in November.
So November was the high forall these stocks.
Only CrowdStrike, I think, hasmade it back to that high, and
since January 6th of 2023, thestocks have been climbing back
up to the point of look at howmuch In two years.
(18:16):
Crowdstrike's up 242% andCyberArk, number two at 162%,
which is surprising.
It's a much smaller company,only worth the market cap of $15
billion today, and Palo Alto,which is the biggest by market
cap, is up 128% from its down.
(18:39):
So they've got a ways to gobefore.
It feels like.
You know you lost your money ifyou were buying way back in
January of 2023.
But you know Palo Alto iscoming up on dipping below that
$100 billion market cap again.
Right, it's the onlycybersecurity company that's
worth that much and it dippedbelow after the disastrous you
(19:03):
know announcement that they'removing to platformization.
Last year it went way down,recovered all this year trying
to make up for that just blunder.
Speaker 1 (19:15):
Heavy PR and marketing, probably pumping
millions of dollars into that.
Speaker 2 (19:20):
I've seen the commercials very pretty
convincing and all the moneythey save by not going to rsa
but showing up at in sanfrancisco and buying out a hotel
at the same time smart that isbrilliant.
Speaker 1 (19:33):
By the way, we can talk about that on a different
episode, but I've written aboutit.
Speaker 2 (19:38):
I think think it's horrible.
Speaker 1 (19:41):
For the industry or horrible for Palo Alto.
Speaker 2 (19:44):
Horrible for the industry and just bad faith from
Palo Alto.
They're not a scrappy littlestartup that gets to say ew, rsa
is extorting money from us andwon't let us use the hotels,
blah, blah.
So we're going to punish themby not showing up.
They're the biggest vendor inthe space.
Therefore, they represent theentire space and they should
(20:05):
support the annual get-togetherof the entire industry in one
place.
They should be supporting that.
Speaker 1 (20:14):
Fair enough, fair enough.
Speaker 2 (20:15):
Yeah, and they shouldn't leech off of it.
If they do decide to boycott it, they should just not send
anybody there.
But no, to show up and say youknow what?
All those people that RSA gotthere in the first place, let's
entice them into our hotel andwow them yeah.
Speaker 1 (20:34):
In other words, don't be a dick about it.
Exactly yeah, they didn't haveto be yeah, okay, gotcha
Checkpoint.
Did didn't have to.
They didn't have to be yeah,okay, gotcha Checkpoint did this
in 2003,.
Speaker 2 (20:45):
I think you know.
Gil Schwedt, who's notoriouslycheap, said this is a waste of
our time and money.
We're the leader, we're notgoing to go, and they were back
in three years.
They were back and they'restill there.
Speaker 1 (20:56):
Hmm, hmm.
They took their ball, went homeand realized that it's no fun
playing by themselves, right?
Speaker 2 (21:01):
Exactly, they missed all the fun.
Speaker 1 (21:03):
Yeah, yeah, all right .
So if we're looking at theCrowdStrikes, the CyberArgs, the
Palo Altos, fortinet, zscaler,varonis, sentinelone Checkpoint,
et cetera, et cetera, yourthesis is basically that there's
no reason to panic.
If you bought at the right timeyou bought back in January
(21:32):
especially you don't have anyreason to panic.
You might be a victim of thedip, but it's not erasing gains
in the way that a lot of themedia is probably making it out
to be, at least in the largertech sector when we get to
cybersecurity, the cybersecuritysector.
Not a whole lot of erasure ofprofits here.
Speaker 2 (21:51):
And it will survive better than a Nike right.
Speaker 1 (21:55):
So Nike Right Retail is screwed Right.
Speaker 2 (22:00):
Retail is screwed.
Yeah, retail is screwed.
Nike employs 450,000 people inChina making shoes yeah, so
they're totally screwed.
Speaker 1 (22:08):
They're screwed at least for a couple of years, or
at least a year or two.
I mean, I'm not aprognosticator.
I suck at telling the future.
I don't even know what's goingto happen tomorrow, but I mean
that's going to be really tough,tough.
It's going to take time forcompanies to move back to the us
to hire all these people and Imean, even if it does happen,
it's going to be a very slowrollout yep, yep.
Speaker 2 (22:32):
First we've got to have the whole phase of uh uh
smuggling industry growing up sowe gotta we gotta watch all
that and the crime that goesaround it.
Speaker 1 (22:43):
Oh, yeah, wow, this thing might be yeah, might be
bigger than we even anticipated.
All right, so what othermovements are we seeing in
cybersecurity?
Do you have any good news thatmay have nothing to do with the
tariffs whatsoever.
What do you got?
Speaker 2 (23:00):
Yeah, so it's my perception.
I've only been digging intothis for a couple weeks, but
it's my perception and it feelslike the entire cybersecurity
industry is for sale right now.
So if you're a private equityor a strategic buyer, now's your
chance, because there arefunded companies that are
(23:23):
selling for less than the amountput into them, and this would
be a time to snap up some highpotential cybersecurity
companies.
Speaker 1 (23:35):
Are we talking about pre-IPO companies?
Yeah, we're talking smallpre-IPO companies.
Speaker 2 (23:40):
Yeah, yeah, yeah, we're talking small.
The entire.
You know, last year there were351 acquisitions of
cybersecurity companies.
Only a few of them were at thatlevel of.
There were no IPOs, but therewere plenty of public companies
taken private by Tomo Bravo andthe rest, yeah.
But most of those 351 dealswere probably close to the
(24:02):
average of tech deals, which was47 million for each one.
So most of the companies youknow that we research and talk
about and see on LinkedIn, etcetera, are in that range, right
, 50 to 500 people and, you know, other than the unicorns, most
(24:23):
of them are for sale.
Speaker 1 (24:25):
Very cool.
So how would one go aboutbuying one of these companies or
at least getting their foot inthe door?
Because let's say, I've got,you know, $300,000, $400,000
cash on hand and I'm working foran attractive deal.
Where do I go?
Is there a platform that's this?
Acting as a broker, do I haveto know somebody like whose leg
(24:47):
do I have to hump to get one ofthese deals?
Speaker 2 (24:49):
Well, at that level you're talking about um going to
acquirecom and there are plentyof SAS companies for sale there
that you buy for that much.
That would be a.
You know you'd have to behands-on.
I think You'd have to have thetechnical chops to manage
whatever it is that you justbought.
Not a lot of them arecybersecurity companies, but
(25:15):
some are, and you'd want to buyone that had revenue right, that
had got up to whatever $20,000a month in monthly recurring
revenue.
But if just a few million moreor you pool your $300K with a
bunch of other people and get upto having $3 million available,
then you can start buying somepretty serious cybersecurity
(25:39):
products.
It's pretty cool out there.
Speaker 1 (25:41):
So if I wanted to do a little bit of recon not the
purchase itself, but I wanted todo a little bit of research
could I do that with IT Harvest?
Speaker 2 (25:48):
Yes, I'm glad you asked.
Turns out that's exactly whatour platform is good for.
We do have investment banksdoing just that In recent weeks.
We've decided that we should bedoing that, we've got the data
and everybody else is just Idon't know what they're doing.
Uh, putting up a sign sayingcome to us if you want to sell
your company?
(26:08):
Um, that's what the investmentbanks do, um, but you know, all
you have to do is start talkingto people, um, and our advantage
is you know, we know everybody.
You know everybody in theindustry, so we do know,
everybody we know everybody inthe industry.
Speaker 1 (26:21):
You do know everybody , you know everything that's
popping up.
Everybody is hiding in thenooks and the crannies, those
companies that you've neverheard about, in places that
you've never seen.
Exactly right, what are some ofthe data points that we should
be looking for or looking at?
There are some indicators tohelp us make these kinds of
decisions on what companies thatyou might be potentially
(26:45):
looking to talk to.
Speaker 2 (26:46):
Yeah, great question.
So the approach I take is Ilook for unfunded companies as a
start.
I think there's 1,700 of them,so those are bootstrap, so
they're not going to haveinvestors who are trying to get
their money out of it oranything like that.
(27:06):
I look for their age.
I want them to be, you know, 10to 15 years old, the companies
thinking that the founders mightbe getting tired of you know
the daily grind and willing tosell or join a bigger company
strategically and move on fromthere.
And then I look for flat orsteadily growing headcount.
(27:28):
So if they're flat, you know,for two or three years, it means
they're making money at the twoor three at that level they're
at, or else you know they'd belaying people off so they could
make money.
And if they're growing slightly, it means not only are they
making money but they're makingmore money every year.
So just by tracking headcountyou can see that right away in
(27:49):
the charts.
So that's what I look for whenI'm hunting.
Speaker 1 (27:53):
I know of one such company not the former but the
latter where they laid peopleoff, but it's not because the
result wasn't a decrease inprofit.
It may be a decrease, a slightdecrease, in revenue, but their
profit margin went upsignificantly because, of course
, they have less overhead,because they found a way to
(28:17):
leverage the resources that theyhad in order to increase
production and to reach sectorsthat are pretty large, because,
you know, I don't want to givetoo much away.
You know, shout out to thisperson.
If you know who I'm, if you'relistening to this, you know who
you are uh, the ceo over there.
But it was a pretty smart movefor them and, you know, not in
(28:39):
large public circles, butprivately he's pretty happy
about and sort of short ofboasting that his profit margins
are up.
Speaker 2 (28:50):
If you show profit margins that are growing, then
you should be talking to privateequity, because private equity,
you know, sometimes they havedomain expertise but they really
have financial expertise.
They can turn, you know,basically your profit margins
and your total profits into anumber that you're worth and
they can buy you for that number.
(29:11):
But without any, you know, thedue diligence is going to make
sure you're not lying to themand that you have customers and
you have technology and all therest.
And you have customers and youhave technology and all the rest
.
But not as difficult when theinvestment thesis is if only we
acquired them, cut their costs,laid off 20% of the people, then
it'd be profitable, then we canfund the debt we need to make
(29:32):
the deal happen in the firstplace.
If you got profits, you're aneasy sale to a private equity
company.
If you don't have profit butyou have growth, then you may be
an easy sale to a technologycompany, a strategic buyer.
So maybe it's CrowdStrike orPalo Alto that can see your
growth and see the impact andthe penetration of the market
(29:55):
that you made.
You're going to bring them newcustomers.
Bring them new customers.
You know Palo Alto's.
You know if Palo Alto reallybelieves in what they're doing
as far as platformization, thenall they need is more customers.
They'll take every customer ofa $20,000 solution and they'll
sell them all the rest of thePalo Alto stuff for a million
dollars.
That's the model, even though Ithink it's crazy.
(30:15):
It doesn't work, but that'swhat they're thinking.
Speaker 1 (30:18):
So there'll be strategic buyers of companies
like that, yeah let's say I'mmaking an assumption that since
we talked about the whole Israelthing, I'm not going to beat
that dead horse anymore, wrotean entire research paper on it
which I can make available toanybody.
Just hit me up on LinkedIn,shoot me an email.
Not going to go into detail,but let's assume and you can
(30:40):
correct me if my assumption isright or not that the Israel,
the Israeli market,cybersecurity company market is
somewhat inflated.
Because if everybody's flockingto Israel, then as soon as
there's a startup there, I meanyou want to scoop them up
Because chances are, the talentpool is going to be great.
They're going to have X youknow IDF unit 8200 folks coming
(31:04):
from there.
So they've got cybersecurityand intelligence and code
breaking and all this stuffbaked into their DNA.
So you want to scoop up thoseteams.
Right, whether they're makingmoney or not, you're probably
going to scoop them up, which,in my view, makes them a little
bit inflated.
So juxtapose that against adifferent market that might be
equally as prepared but not aswell known.
(31:27):
Is there some region in theworld where there's a market for
companies that may not be aswell known as the israeli cyber
security companies, but theymight be pumping out some uh
small startups that might beworth something yeah, korea,
korea's um, early, early stages,um, but they are several years
(31:50):
ago they started reaching out toIsrael and trying to create
partnerships and incubators andall the rest.
Speaker 2 (31:56):
So they want to.
You know, it's like a statedgoal is to mimic the Israeli
miracle in cybersecurity.
And you know, of course,fantastic companies, fantastic
technology, really really smartpeople who you know, let's face
it are not very good at doingthe next step in the Israeli
(32:18):
miracle, which is landing in theUnited States and selling here.
That's really difficult for aKorean company.
So it'd make a lot of sense toacquire a Korean company.
It would make a lot of sense toinvest in Korean companies if
you can open doors for them herein the US.
Speaker 1 (32:34):
Yeah, yeah.
Otherwise there are otheroptions.
To set up shop or at least somesort of liaison in K-Town.
Yeah, maybe not a bad idea, butI don't think that that's
happening anytime soon.
Speaker 2 (32:47):
Just hire people, man yeah.
Speaker 1 (32:50):
You know, they do have also a strategic advantage
that they would share withIsrael, which is they require
everyone to join the militaryafter high school and there's
mandatory military service.
If the military and thegovernment were to follow suit
and they were to adopt some ofthe strategies that Israel had
kind of laid out and done there,then they would bake
(33:14):
cybersecurity into the trainingof the military, which to me
seems like a pretty logical dotto connect, but maybe they're a
few years away from that.
Speaker 2 (33:28):
Yeah, because Korea's got one problem.
North Korea, yeah, smallproblem.
And North Korea is really goodat the offensive side of
security.
They have to move into a hotelin China in order to execute
attacks because they don't havereliable internet.
Window hotel in China in orderto execute attacks because they
(33:51):
don't have reliable internet.
But it's unlike Israel, wherenot only is Israel under
constant attack from all sides,right, every single person in
the Middle East wants them todie, so they're very, very
defensive, to the point wherethey also invest a lot in
offensive security.
Speaker 1 (34:07):
Right preemptive strikes.
Speaker 2 (34:08):
Yep, they have hands-on hacking experience when
they come out of the military,and usually I've talked to quite
a few founders who saw whatthey were doing and then came up
with a product to stop themfrom doing it, and that's how
they got started.
Speaker 1 (34:24):
Yeah, so Israel is in itself a red team, blue team
incubator, so they're attackingand defending, whereas korea
they're defending most of thetime.
I don't think they're doing alot of attacking so between the
north and the south, becausethey're separate the red team
and the blue team uh is, theyare incubated and isolated from
(34:48):
the rest of the world.
So they're not attacking anddefending from external forces,
they're just attacking anddefending from themselves.
If you really think of theNorth and the South as somewhat
obviously not the same country,some may disagree.
Kim Jong-un, my little rocketman, might disagree, but maybe
that's preventing them fromgoing global.
Speaker 2 (35:10):
That might have to do with it yeah, I don't know.
Speaker 1 (35:13):
What do I know?
Um, okay, so is there anythingthat you can show in it harvest?
At least, just give me anexample of what would I be
looking for.
What would I look for when I'msearching or doing my research
for, you know, one of thesepotential acquisitions, and just
(35:35):
kind of walk me through some ofthe numbers.
Speaker 2 (35:37):
Okay um, let's look at I'm pretty sure this is what
I want to look at armor blocks.
No, they've been archivedbecause cisco acquired them.
So it's worth looking atheadcount if we have the data.
If you ever see this kind ofheadcount graph, it's because
the company's been acquiredright and, believe it or not,
(35:59):
after the company's acquired,there are always a whole bunch
of stragglers that you knowthey're employed by Cisco, but
they don't change their LinkedInprofiles, and that's typical
insecurity, because but theydon't change their LinkedIn
profiles, and that's typicalinsecurity because techies don't
care about that stuff.
But who else can we look at?
Speaker 1 (36:17):
So, just to be clear, what we're looking at here is a
drop off of the employees orthe headcount After.
Speaker 2 (36:23):
Cisco acquired them.
Speaker 1 (36:25):
That's right.
When Cisco acquired them, theheadcount dropped off.
Okay, okay.
Speaker 2 (36:28):
Yeah, because on that day everybody is excited and
they update their employment toCisco.
Speaker 1 (36:34):
Yeah, now I work at Cisco.
Speaker 2 (36:36):
Exactly, exactly.
If you look at Mandiant who, nomatter how many times I talk to
Google, they say you know thereis no Mandiant anymore, it's
Google Cloud Security.
Yeah, but you know there are1,400 people who claim
employment at Mandiant stillafter all this time.
Speaker 1 (36:58):
So they have the opposite effect.
Where?
Why would that?
I don't know.
Speaker 2 (37:03):
I do not know, I don't know.
I do not know.
You would think you would wantto be a former Googler, because
that implies that if you're atech person, it implies you're
making half a million a year.
So you could demand that you'rea former Fang.
Now you do a startup.
So let's just do this.
We are going to look forcompanies with between 200 and
(37:30):
500 people who have grown let'ssay, 2% so far this year so this
is in 2025 and have taken in atmost $2 million, okay, $2
million, okay.
So if you were a buyer, youcould buy one of these companies
(37:50):
for a multiple of their profits.
You'd have to talk to them andfigure out what that is.
We're going to do the growth.
So my breadcrumbs up hereGreater than 200, less than 500.
Year-to-date growth there are104 companies that match that.
Speaker 1 (38:11):
That fit that criteria.
Okay, Fit that criteria.
Speaker 2 (38:14):
So you can start going through the growth All
these companies are growing.
Speaker 1 (38:18):
They're all hiring.
Go shopping, yeah go shop.
Speaker 2 (38:21):
These are great companies.
Speaker 1 (38:23):
We're window shopping right now.
That's right.
Speaker 2 (38:26):
And, if we can do, a total funding of $2 million on
top of that.
So now there's 31.
So out of those 108, most ofthem got funding right, but
these guys don't have very muchfunding.
So you might want to look at 42Gears and API, security Group,
(38:50):
ib and Threat Intelligence rightis killing it and headquartered
in Singapore.
Speaker 1 (38:56):
Can we look at Group IB and see what their headcount
change was year over year?
Speaker 2 (39:01):
That should be interesting, because you know
they kind of pulled a fast oneon Putin and you know the
company kind of pulled a fastone on Putin and the company
kind of disappeared and thefounder escaped to the West and
then he showed up in Singaporeand all of a sudden the
company's back, so maybe it'llbe, yeah, kind of interesting
what's going on there.
He's doing a little dance.
(39:24):
Yeah, exactly, this is whenthey were disappearing.
All of a sudden they're back.
They're growing.
I don't know what happened here.
This is only a drop of 50people During the tumultuous 23
to 24, they were flat andgrowing.
It's a great, great sign.
Now they just took a big jump.
Now that could be eitherthey've had a funding round to
(39:45):
jump to.
That's almost.
Yeah, that's 110 people.
Speaker 1 (39:52):
So they went up by almost 50%.
So somebody didn't buy the dip.
Speaker 2 (39:56):
Right, that's right, and this could be that they
acquired a team or several teamsor did an acquisitions, but
yeah, they didn't.
They really haven't had verymuch funding at all for a while.
Speaker 1 (40:11):
Yeah, yeah, very cool stuff.
Check out IT Harvest, you mightdo some window shopping and you
might find a new pair of shoesthat you like.
Speaker 2 (40:20):
The trigger is when you hire a new associate for
your private equity firm who'sgot all the financial background
you need and the personality,everything you hired them for,
but they don't know anythingabout cybersecurity.
You give them this one tool andthey have accumulated knowledge
that myself and the whole teamhas put into it for four years.
Speaker 1 (40:40):
Yeah, so you become an industry analyst overnight,
pretty much.
Speaker 2 (40:43):
Yep, totally yeah.
Speaker 1 (40:44):
All right Industry analyst in a box.
Richard Steenan, thanks fordropping by, my friend, it's
always great to talk to you andI know you've got better things
to do today.
On a Friday, if you'relistening to this, this will be
on a Monday, but have a greatweekend.
And how can people find you ifthey want to follow you?
Speaker 2 (41:02):
Yeah, check me out on LinkedIn.
Speaker 1 (41:04):
That's the easiest way People contact me every day
on LinkedIn and I'm always happyto talk All right and listen to
Cybernomics, the full radiobroadcast anywhere.
You can find your podcastsevery Wednesday morning, 7 am,
bright and early.
Thanks for listening.
We'll see you in the next one.
Bye.
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