According to the Identity Theft Resource Center's 2022 Annual Data Breach Report, the number of incidents where data was compromised last year fell just 60 events short of the all-time record hit in 2021. And though there were nominally fewer breaches, the number of people impacted soared by more than 41% to 422 million people, with over half coming from the revelation that Twitter accounts had been compromised.
The good news is that the number of breaches and exposures related to unprotected cloud databases plummeted by 75%, indicating there is much greater awareness of and proactive response to the ever-looming threat of cybercrime by businesses and organizations.
The report also underscores why cybersecurity is no longer viewed as a luxury, but rather as a necessity for businesses of any size, and why the following pair of cybersecurity stocks are your best bets to buy in February.
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1. Palo Alto Networks
Even if the U.S. economy enters a recession, cybersecurity seems likely to be one of the few areas of IT spending that will not face budgetary cuts relative to other categories. As a pure play in the cybersecurity market, Palo Alto Networks (PANW -1.23%) ought to be one of the top beneficiaries.
Despite having a strong base in products such as firewall appliances, which enjoyed 12% revenue growth to $330 million in its fiscal first quarter, Palo Alto also expanded its software offerings through acquisitions. The company provides it with a much stronger presence in new or expanded markets, such as cloud security, and software and support revenue grew 30% for the period, reaching $1.2 billion.
It's also Palo Alto's most profitable business, with a 72% gross margin versus 64% for product, and the company is producing prodigious amounts of free cash flow as a result -- some $1.2 billion last quarter.
Shares are up 16% so far in 2023 as the whole sector -- and anything associated with artificial intelligence (AI) -- got a big boost from Microsoft-backed OpenAI's ChatGPT debut and what it portends for all industries. As a leader in delivering comprehensive cybersecurity underpinned by AI and automation, look for Palo Alto Networks to continue deploying not only technological excellence, but also posting sustained annual profitability.
2. Zscaler
Cloud-based cybersecurity firm Zscaler (ZS -1.64%) also benefited from the chatbot boom this year, with its stock up 26% year to date, though it was a clear pick to outperform beyond just the market's rediscovery of AI-related stocks.
Zscaler has benefited from winning new clients, particularly enterprise-class businesses, and increasing the average deal size as its sell more products to those customers. The company grew its base of customers with $1 million or more in annual recurring revenue (ARR) by 55% year over year, ending fiscal Q1 2023 with over 340 such clients.
And these customers like what they're getting: Zscaler's net retention rate -- the ARR of existing clients compared to the ARR from the same customers a year ago -- exceeded 125% for the eighth consecutive quarter.
Zscaler isn't a cheap stock at 16 times sales, but that's actually its lowest valuation since the company went public in 2018. It has a strong pipeline, is able to close larger deals, and maintains an ability to sustain its pricing prowess, making it a stock to buy today.
