The latest hot start-ups to emerge from Israel’s cybersecurity war machine

David Furst | AFP | Getty Images

Israeli soldiers march in front a Merkava tank

More than $680 million was invested in cybersecurity companies in 2016. But it wasn't in Silicon Valley. It was Israel.

Some of the biggest investment rounds were made in two standout start-ups to emerge from Israel's cybersecurity sector in recent years: GuardiCore and Fireglass. Last year these companies — both of which made CNBC's inaugural Upstart 25 list — raised funding rounds of $20 million. GuardiCore, founded in 2013, helps customers detect active breaches inside their data centers in real time, reducing the time it takes for a company to realize it's even been hacked from months to minutes. FireGlass, founded in 2014, uses isolation technology to protect networks. Users browse the internet or read email within the Fireglass service, which effectively places a secure buffer zone between the user and any malicious online content, preventing hackers from reaching the network. Large enterprises and Fortune 100 companies use the services of both companies to secure their data centers and protect their employees.

Although they are separate companies, they share one characteristic that's at the heart of each start-up's meteoric rise: Both the founding teams of GuardiCore and Fireglass contain former members of the Israel Defense Forces.

For nearly four decades the Israeli military has been grooming a new kind of soldier: cybersecurity intelligence experts.

Some are trained in the elite Talpiot program, where they earn degrees in physics, math or computer science. Other soldiers, including some trained in Talpiot, work in the famed intelligence unit of the IDF, credited with creating the Stuxnet virus that infected the computers inside Iran's nuclear enrichment program.

"In Israel, companies and customers are more open to experimentation. So you have this small playground where you can try stuff."-Ron Berman, assistant professor of marketing, Wharton School of the University of Pennsylvania

In the Israeli military, the focus is often on securing large enterprise systems and data centers, practical training that has proved useful to IDF veterans who went on to found their own companies.

"When people leave the military, many go out and start their own companies. When you're finishing your army service at age 21 with three super-intense years of cyberdefense training at the highest level, that's really the biggest edge," said Tal Slobodkin, a veteran of the IDF and now partner at StageOne Ventures in Israel.

Leading the charge

The payoff has been huge. Israeli cybersecurity firms own roughly 10 percent of the worldwide $11.9 billion market today, and the country is home to some 300 cybersecurity companies. In 2016 alone, 83 new cybersecurity start-ups were founded, according to YL Ventures, an investment firm with offices in Silicon Valley and Tel Aviv.

"Israel has always been defense-minded and proactive in their defense," said Judith Germano, senior fellow at New York University's Center for Cybersecurity. "Combine that defense mind-set with an entrepreneurial spirit, and within Israel that has helped to create this boon."

According to YL Ventures data, $560 million was invested in Israeli cybersecurity companies in 2015. In 2016 that number rose to $689 million.

Of course, Israel has a history of cybersecurity success to draw upon. Check Point Software, among the earliest companies to develop firewalls to keep hackers out of computer networks, was founded by three IDF veterans and went public in 1996. CyberArk, whose co-founder and CEO Udi Mokady served in the intelligence unit of the IDF, makes software to identify and then block unauthorized access to privileged parts of an organization's computer network once hackers have made it inside.

Because the Israeli military tries to predict and plan for how cyberattacks of the future will be carried out, it's typically the case that those soldiers who receive cybersecurity training are "ahead of the curve with where things are going," Slobodkin said.

That carries over when IDF veterans found private companies. When CyberArk went public in September 2014, it was already pulling in revenue of more than $100 million. Following the hack of Sony Pictures Entertainment two months later, its share price rose quickly as large organizations recognized the need more than ever to protect their digital assets. By the end of 2015, CyberArk had $161 million in revenue, a 42 percent year-over-year increase, and was worth $1.42 billion.

Staying on the offensive

"Israel has been on the cutting edge on the military side of developing offensive and defensive cybersecurity. It's natural that this stuff has migrated from military applications to consumer applications," said Scott Tobin, a partner with Battery Ventures, based in Israel, who led the firm's investment in GuardiCore's latest funding round.

That cutting-edge cybersecurity found its way into GuardiCore and Fireglass.

Fireglass co-founder Guy Guzner worked 13 years at Check Point as director and then head of security products before leaving to start his own company. His co-founder, Dan Amiga, is a veteran of the IDF's intelligence unit, which is how isolation technology became the core of Fireglass' business today.

10 Ways to Protect Yourself From Rising Cybercrime

With computer hacking incidents increasing, cybersecurity has become a top concern and among the leading growth areas in technology.

Consumers, companies and even governments have been combatting increasingly brazen and sophisticated cyber attacks. Many of the attacks have involved sabotaging systems and stealing data, including personal identity theft. 

The frequency of such events have fueled demand for the services of cybersecurity leaders, including Cisco Systems and Symantec. These companies are among the most promising tech investments you can make today. ThePureFunds ISE Cyber Security ETF (HACK) , which tracks the industry, has gained 2.43% over the past five days, as increased reports and fears of cyber crime have made the front pages.

 

But the trends have underscored the need for individuals to be more vigilant. Below are 10 ways to guard against becoming one of the millions who fall victim to Internet crime every year.

1. Consider your social media behavior carefully. Scam artists are more adept at using personal information on social media to crack your security codes and gain access to other accounts. Breaches from social media have soared over the past few years.

2. To ensure your social media accounts don't become a goldmine for hackers, limit access to an inner circle of family and friends, never share personal information with people you meet online and don't include birth dates, e-mail addresses, pet names that double as passwords or other details hackers might find useful.

3. Don't use debit cards online. Unauthorized debit card charges are taken directly from your bank account, and even if you report the breach immediately, it could take weeks for pilfered money to be restored. With a credit card you won't be out the cash while challenging the suspicious charge. Both types of cards offer alert functions that e-mail or text you when the account posts a transaction, helping you spot unauthorized activity right away. Visa is a leader in developing credit card protection, which is a major reason the stock is among a class of tech innovators poised to outperform the broader market this year.

4. Beware if you see messages such as: "Warning! Your account has been breached. You must call to verify your account. Send us a text when you're able to receive a call from us."

5. Don't become a victim of "click-jacking." This practice conceals hyperlinks beneath what looks like harmless content, but clicking the links opens a conduit to malware that can invade your computer or transmit your personal information.

6. Don't recklessly use any Wi-Fi connection. Wi-Fi hot spots don't encrypt information sent online, so as a rule they aren't secure. What's more, the tools hackers use make it easy for them to look over your virtual shoulder and discover usernames, passwords, or other information to access financial accounts. A cellular network offers more safety.

7. In e-mails and on the Web, look closely at URLs, even if they contain names of reputable financial institutions you do business with. A common trick is combining the name of a legitimate Web site with a fake one (often in a pattern such as legitimate.fakewebsite.com). These URLs lead to a copycat site-often one that looks legit but that identity thieves control. Or, the address is real, but when you click on the link, it brings you to a different site.

8).Never click on e-mail requests to update personal information. Institutions typically initiate such requests after you log into your account, not through e-mail.

9. Beef-up passwords. Don't use the same password for different accounts. Choose passwords with unusual characters, numbers and spaces. As an added precaution, fill in security questions with fictional, easy-to-remember answers, rather than facts that could reveal your digital identity.

10. Use security software. Guard your computer with antivirus and anti-spyware programs that disarm or remove viruses from your computer. Make sure those programs are running and updated automatically.

By Siddhi Bajaj

Source:http://www.thestreet.com/story/13522945/1/10-ways-to-protect-yourself-from-rising-cybercrime.html

Congress Could Give FireEye, Palo Alto Networks a Big Payday

NEW YORK (TheStreet) -- The cybersecurity bill being debated this week in Congress could lead to a bonanza of new software products from the likes of FireEye (FEYE - Get Report), Proofpoint (PFPT - Get Report) and Palo Alto Networks (PANW - Get Report).

The Cybersecurity Information Sharing Act aims to foster communication between government agencies and private companies about cyberattacks, which are becoming increasingly common and have given rise to a renaissance in the cybersecurity sector. Over the last year, FireEye is up about 25%, Palo Alto Networks has more than doubled in value, and Proofpoint is up more than 80%.

 FEYE data by YCharts 
 PFPT data by YCharts 
 PANW data by YCharts 

But just how this communication would be carried out has already been the subject of intense lobbying, due to the legal issues involved in public-private collaborations and the many opportunities for businesses to win lucrative government contracts.

"These systems are going to need to be developed," said Patrick Eddington, a policy analyst at the libertarian Cato Institute in Washington, D.C. "This is where the private companies would step in in a big way."

Revenues for the cybersecurity majors come primarily from the private sector: Only 10% of Proofpoint's business comes from government, for example. FireEye's portion of public contracts is slightly higher, according to industry analyst Steve Koenig of Wedbush Securities. The company counts 60 governments and military organizations as customers.

FTNT: A Pre-Earnings Fortinet Trade With 150% Upside

Cybersecurity play Fortinet (FTNT) is set to release its earnings after Wednesday’s closing bell. And if history is any indicator (and if option traders have it right), FTNT should be securing additional year-to-date gains for bullish investors.

In front of Wednesday’s after-hours release from Fortinet, Wall Street is expecting the company to turn a profit of 2 cents per share of FTNT for its second quarter. The forecast profit is down 60% year-over-year from 5 cents, but up sequentially from the first quarter’s penny take on for its bottom-line and one that beat estimates calling for the company to breakeven.

Last quarter, shares of FTNT surged by nearly 10% after the company topped Street views punctuated by “record billings growth and solid large-enterprise deal growth,” according to Barron’s.

The report also saw an eighth consecutive sales beat and year-over-year growth of 26%, prompting broker Piper Jaffray to raise its price target in FTNT from $38 to $45 while maintaining its “overweight” rating.

However, earnings beat consistency in Fortinet has been lacking. In the prior three quarters, Fortinet managed to miss profit estimates by 12.5%, 40% and 16.67%. But with FTNT in a growth hotspot — and one that’s just coming of age — bottom-line misses haven’t entirely stopped investors.

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FTNT stock’s post-earnings movement for the past six quarters has resulted in an average move of 3.25%. If we look at the percent magnitude of each reaction by stripping out the directional bias, we find the average close-to-close change in FTNT shares is 5.57%, with a one standard deviation of wiggle room of 3.29%. That said, there’s also a longer-term bias of FTNT reacting to the upside 80% of the time.

FTNT Daily Trading Chart

Click to EnlargeIn front of Wednesday’s earnings report, shares of FTNT have managed to hold onto last quarter’s near 10% upside reaction that jettisoned shares to all-time-highs. More recent, that session’s highs acted as technical support following an analyst downgrade—the third such cut from brokers over the past month.

The most recent analyst action was a cut to “underperform” — essentially, “sell,” — from “market perform” from Cowen & Co.

Cowen maintained its $37 price target on shares of FTNT while noting that expectations have become too lofty, and that investors risk being disappointed after an advantageous 2014, tougher comps and difficulty breaking into the highly competitive enterprise market.

Technically, after breaking out from a significant four-plus year base at the end of 2014, we estimate the bulls are in control of FTNT stock. In our view, Fortinet is forming a bullish first-stage weekly base following a count reset in late January, which importantly successfully tested the former highs, then proceeded to rally to fresh all-time-highs of $44.12 by mid-June.

FTNT Options

In Monday’s session, volume in the option pits was moderate, with the most active market spied in the Sep $40 call. Roughly 900 contracts compared to open interest of about 2,200 with a closing mid-market price of $3.65 with shares of FTNT at $42.43.

With implied prices rising and continuing to spread above underlying price volatility in shares of FTNT, premiums are near the highs around 40% set during the prior two earnings events. In this instance, though, the difference between the two types of volatility is greater and a crush in premiums is even more likely.

A drop in implieds on the heels of the report fails to account for the earnings move itself. Based on implied pricing of around 37% in the August at-the-money contracts, we can determine traders are pricing in a 68% chance FTNT remains between $37.75 and $47.25 through expiration which is 33 calendar days out.

Option traders in FTNT are preparing for a volatile event, but certainly not over the top as implieds are still modestly below recent reports. Still, there are two trading days left for premiums to adjust further.

It should be noted that beyond FTNT, other cybersecurity stocks are set to report over the next week.Check Point Software (CHKP) reports first on Wednesday morning, Vasco Data Security (VDSI) is next Tuesday afternoon and FireEye (FEYE) announces its results that Thursday after the close.

FTNT Bullish Strategy

Given premiums are expected to shrink following Fortinet’s earnings report — and despite (or maybe because of) the history of an 80% upside record in FTNT stock and believing trends do sometimes end suddenly — I like the Aug $43/$45 bull call spread for 80 cents or better ahead of earnings.

For 80 cents or less, the trader’s expiration breakeven of $43.80 in FTNT is well inside the upper boundary of our estimated expected range boundary of $47.25. And if shares are above $45 in 33 calendar days, the position will return $1.20, or 150%.

In the event historical trends in FTNT stock do not make an appearance and it turns out Fortinet’s most recent and less optimistic broker calls are correct, there is less than 2% stock risk involved with this vertical spread. At the end of the day, the limited risk feature could save traders from unwanted bearish intruders and keep potential losses nice and small.

by Chris Tyler

Source: http://investorplace.com/2015/07/ftnt-stock-fortinet-earnings-preview-fortinet-options/#.Va6yAPlViko