Cybersecurity in focus as SPLK rises on talk of CSCO bid

Listed cybersecurity stocks could see investor interest as two tech giants might be on the prowl for acquisitions in the sector.

IT security – widely marketed as cybersecurity – has come to the forefront of attention in the wake of major security breaches in recent years including a US oil infrastructure company, Colonial Pipeline, being held to ransom by hackers last year.

Late on Friday The Wall Street Journal reported that network equipment maker Cisco Systems (CSCO) had made a $20bn (£14.8bn, €17.7bn) takeover offer for Splunk (SPLK).

Splunk rose by as much as 14% on after-hours trading on Friday. On Monday the stock opened 5% higher at $120.78 per share and was up almost 9% in morning trading.

Splunk

The San Francisco-based Splunk makes security information and event management (SIEM) software which provides real-time analysis of security alerts generated by applications and hardware on an organisation's IT network.

The company’s software can even be configured to display on large screen TVs so an IT security team’s work can be seen in real time.

Last November Splunk CEO Doug Merritt stepped down after leading the company for six years, with Graham Smith taking charge on an interim basis.

Q3 earnings

In December Splunk reported its fiscal third-quarter non-GAAP loss widened to 37 cents per share from 7 cents a year earlier on revenue which rose 19% year-on-year to $664.8m.

Total annual recurring revenue (ARR) – a key metric used by subscription businesses – was up 37% to $2.83bn for the three months ended 31 October.

“Q3 marked a significant milestone for Splunk as it was our first billion-dollar cloud ARR quarter, with cloud accounting for a record 68% of our software bookings,” Splunk interim CEO and chair Graham Smith said in a statement.

Wait and see

One analyst cautioned Splunk shareholders in the wake of the news report.

"While the companies are not in active discussions yet, we urge Splunk shareholders to remain cautious of Splunk’s valuation baked into Cisco’s bid. While the precise amount was not disclosed in the news report, we suspect that Cisco’s offer of 'more than $20bn' would not compensate Splunk shareholders adequately," Morningstar analyst Malik Ahmed Khan wrote in a note.

"Based on our calculations, we’d caution Splunk shareholders against agreeing to a deal below roughly $28bn…As a result, we think Splunk’s shareholders should hold out for a better offer from either Cisco or some other interested party," the Morningstar analyst wrote.

Splunk is scheduled to release fourth-quarter earnings on 2 March.

Mandiant

Last week, Bloomberg News reported that Microsoft (MSFT) was considering making an offer for Mandiant (MNDT).

In early trading on Monday morning, Mandiant was up 23% at $18.63.

The company changed its name to Mandiant after the sale of its FireEye products business for $1.2bn to Symphony Technology Group in June 2021, while retaining Mandiant, the cybersecurity products and incident response firm that was acquired in 2014.

Last week Mandiant posted a fourth-quarter loss per share that narrowed by a penny to 10 cents on revenue which rose 21% to $133m.

"We achieved a significant milestone in Q4, divesting the FireEye Products business and positioning Mandiant to deliver accelerating growth and extend our leadership position in expertise and intelligence," Mandiant CEO Kevin Mandia said in a release.

"We are uniquely positioned to address an enormous market need and can concentrate all of our attention on helping organisations close their cyber security gap."

ETFs

Investors looking to get in on the cybersecurity sector might look at exchange traded funds (ETFs). Rather than investing in an individual company’s shares that have the potential to lose value, an ETF spreads the risk by pooling together more than one company’s shares into an exchange-traded product that typically has lower fees than traditional mutual funds.

Among the many cybersecurity-focused ETFs on offer for investors are:

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