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Unlike IT Spending, Cybersecurity Spending Is All Set to Grow

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Increase in data breaches provides revenue growth for cybersecurity companies

Previously in this series, we looked at Fortinet’s (FTNT) better-than-expected results in fiscal 3Q15. We also saw that its tepid guidance for fiscal 4Q16 caused a disappointment in the market, which led to a steep fall in its share price.

This soon had a ripple effect on other cybersecurity companies such as Check Point Software Technologies (CHKP), CyberArk Software (CYBR), and Palo Alto Networks (PANW).

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Lately, an increase in data theft and breaches has brought the focus to the cybersecurity space. 24/7 Wall St., citing an Identity Theft Resource Center (or ITRC) report, stated that 563 data breaches have been recorded so far in 2015 through September 22, 2015. This is probably why companies are spending billions of dollars to upgrade their security systems.

IT spending is expected to shrink; cybersecurity spending will continue to rise

Gartner stated that although overall IT spending is expected to shrink 5.5% on a year-over-year basis to $3.5 trillion in 2015, global cybersecurity spending is expected to reach $76.9 billion and $86 billion in 2015 and 2016, respectively, as the above graph shows. In 2011, cybersecurity spending was approximately $55 billion. In the last part of this series, we’ll look at the trends in the IT sector that are fueling growth in the cybersecurity space.

If you’re bullish about Fortinet’s prospects, you could invest in the PureFunds ISE Cyber Security ETF (HACK). HACK invests about 5.0% of its holdings in Fortinet.

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