Is This The Best Way To Profit From Cyber Security?

| About: Akamai Technologies, (AKAM)


Global security breaches are expected to accelerate much faster in 2014 than in the last two years.

Akamai Technologies Inc. is a provider of cloud-based services for delivering, optimizing, and securing online content and business applications.

AKAM has seen stellar growth in the past year, and could provide investors with solid returns in the medium term.

As discussed in an earlier article, 2014 is shaping up to be another big year for cyber attacks. Akamai Technologies Inc. (NASDAQ:AKAM) could be the best way for investors to profit from it.

Never mind the explosive Heartbleed bug that recently wriggled its way through data centers everywhere the last few months, Intel's McAfee lab expects the number of global security breaches to accelerate much faster in 2014 than in the last two years.

While having people's private information hacked is not something to feel good about, it definitely translates into big business for security technology companies.

In a joint report from intelligence firm IDC and the National University of Singapore, businesses around the world are expected to spend around $500 billion to combat hackers in 2014.

As we increasingly integrate our lives online, be it cloud computing or the Internet of Things, McAfee believes we're becoming more vulnerable to cyber threats as a result.

Yet, at the core of these attacks lies a fundamental loophole that gets exploited time and time again.

See, in order for viruses or malware to spread, there typically needs to be an action on the part of the potential victim to allow the attacks to happen.

One of the simplest ways for hackers to unleash hell is using a tactic known as spear-phishing.

I'm sure most of you come across them on a regular basis, often in the form of a harmless-looking email.

These emails are usually designed in such a way that the template and layout appears to be something official from either your own company or a reputable organization, such as eBay or LinkedIn.

The message would often ask that the recipient click on a link or reply back with some confidential information, such as usernames or passwords.

If the recipient naively responds to the phishing email, only then will the cyber threat infiltrate and become a full-blown attack.

Even as the debate continues between the supposed security strength of different computer platforms or smartphones, the reality is that computer systems themselves have little to do with how the cyber attacks are triggered.

We humans are the true security loopholes.

"It's not the vulnerability in the computer -- it's the vulnerability in the human that always gets targeted," explains Dmitri Alperovitch, CTO of cyber security firm CrowdStrike Inc.

A primary target for spear-phishers tend to be personal assistants of company executives, according to Kevin Haley of Symantec Corp. (NASDAQ:SYMC).

Because of their highly integrated role inside companies, PAs are given unprecedented access into executives' calendars, contact lists, email accounts, and other confidential information.

Even with all the money poured into online security solutions, it would all be for naught if one unsuspecting employee hit the reply button.

According to the Center for Strategic and International Studies, annual losses from cybercrime, intellectual-property theft from corporations, and other costs could run as high as $400 billion this year.

IT solutions firm EMC Corp. (EMC) reported 450,000 known phishing attacks in 2013, and losses from them reached a record $5.9 billion.

But seeing as cyber attacks will only get more sophisticated and happen more frequently in the future, one company at the forefront of online security could stand to profit immensely from the growing threat.

Top Security Stock To Buy

With more and more companies now moving their computing operations into cloud and mobile platforms, Cambridge, CA-based Akamai Technologies is perfectly positioned to serve their security needs.

A provider of cloud-based services for delivering, optimizing, and securing online content and business applications, the tech firm has seen huge growth through its Security division.

CEO Tom Leighton says that cloud computing is more secure than the traditional model of hosting data in data centers. Cloud solution providers like Akamai can intercept potentially harmful traffic, then analyze and eliminate malicious content before it harms customers.

Companies out there must've hung onto Leighton's every word over the past year, because in Q1 2014, AKAM generated $454 million in revenue, a 23% rise over Q1 2013.

A great deal of the momentum was driven by its cloud computing security tools, which has helped to prevent data theft and reduce downtime.

Resulting net income for the first quarter was $73 million, or $0.40 per diluted share, a 2% increase over first-quarter 2013's net income of $71 million, or $0.39 per diluted share.

Adjusted EBITDA was $204 million in Q1, up from $166 million in the first quarter of 2013.

Cash flow from Q1 2014 operations was $89 million, equating to 20% of revenue. At the end of the quarter, AKAM had $1.4 billion in cash and cash equivalents.

On top of that, the company also initiated a stock buyback in Q1, where it spent $116 million to repurchase 2.0 million shares, which tightened the float to 179 million shares outstanding.

As more businesses extend a white-knuckle grip to try and clamp down on Internet hijackings, investors in the cyber security industry will want to take a stand with AKAM.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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