From time to time in the headlines of the media there are references to the next cyberattacks on the largest corporations and individuals around the world. Any cyberattack begins with a violation by its object of elementary security rules: by opening a link or letter of suspicious origin. Knowledge of cybersecurity fundamentals by company employees has become as important as knowledge of basic fire safety rules.
KnowBe4 is one of the largest providers of SaaS platforms for training employees in network security and imitation of phishing (fraud to obtain personal data). KnowBe4 has filed an S-1 application for an IPO on the NASDAQ exchange. Ticker assigned to the company “KNBE“The placement will take place on April 22, and trading will begin the next day.
KnowBe4 was founded in 2010 by renowned cyber security expert Stu Sjouwerman, who heads it now. He is the chief editor Cyberheist News – the leading electronic publication dedicated to IT security. The company’s platform allows organizations to minimize the impact of the human factor during cyber attacks by training employees. The staff constantly receives up-to-date information on the types, nature and types of fraudulent schemes.
KnowBe4 took an integrated approach to create the platform that combined employee awareness, cloud software, artificial intelligence, machine learning and data analytics. According to the company, the main asset and at the same time the main source of security threats are people. KnowBe4 uses social engineering in its platform, which allows you to adapt training programs to take into account possible patterns of manipulation with the human psyche. Since often employees do not immediately understand that they are trying to find out any secret data.
The company offers the following services:
- Cyber security basics training.
- Turnkey Cyber Security Management.
- Risk analytics and compliance.
KnowBe4 sells directly to new customers and through channel partners. The latter provided more than 37% of the company’s revenue. More than 37,000 organizations have become KnowBe4 clients. The share of international sales in the company’s revenue structure has doubled over the past two years from 6.0% to 11.9%. The coronavirus pandemic has boosted the pace of the company’s business, with most of the world’s employees leaving for remote work. Now let’s talk about the KnowBe4 address market.
Market and Competitors KnowBe4
International corporations are investing more and more financial resources in cyber security and related personnel training every year. IndustryARC reports that the global market for IT security and protection against phishing attacks in 2019 is estimated at 922 million USD. By 2025, it can reach 1.94 billion USD. The average annual growth rate will be 11.3%.
According to the largest cyber security expert Kevin Mitnick, who is also KnowBe4’s Chief Hacking Specialist, the company’s target market in 2020 amounted to USD 15 billion. More than 30% of it is in North America. With comparable growth rates (from 10 to 15%), by 2025 it may reach USD 25 billion.
The main competitors of the company are:
- Barracuda Networks
- Trend Micro
As you can see, the list contains large multinational companies. But for them, IT security is not a specialty, so KnowBe4 at the current pace of development, which we will talk about later, can become an industry leader.
Financial performance of the company
Like many in the tech sector, the company does not generate bottom line. Therefore, first of all, we will consider the dynamics of changes in KnowBe4’s revenue. Note the high growth rates of this indicator from 2018 to 2020. At the end of last year, the company’s sales reached USD 174.89 million, a relative growth of 45.04% against 2019.
The relative growth of revenue in 2019 compared to 2018 amounted to 69.13%. The average growth rate is 57.08%. Thus, this year, the revenue may amount to USD 275 million. Also worth noting is the growth in KnowBe4’s gross profit. In 2020, it amounted to USD 148.16 million, a relative growth to 2019 – 48.16%. In 2019, the relative growth to 2018 was 68.82%.
The company’s net loss is rapidly decreasing. KnowBe4 may break even this year.
Free cash flow of the company at the end of 2020 totals USD 36.72 million. The relative growth in 2019 was 94.08%. The company has 86 million USD in cash on its balance sheet, and the total liabilities of the company amount to 221 million USD.
The marketing cost effectiveness ratio is 0.7, that is, 1 USD of marketing expenses brings 0.7 USD in revenue. This indicator is the point of growth of the company. I would like to note the high rates of revenue growth and the positive dynamics in the decline in the rate of increase in KnowBe4 expenses.
KnowBe4 strengths and weaknesses
Having analyzed the company’s business model, we will highlight the strengths and weaknesses of KnowBe4. The advantages of the company include:
- The company’s revenue growth rate is over 40%.
- The address market is estimated at USD 15 billion.
- The growth rate of gross profit exceeds the level of 30%, which will allow reaching the break-even point at the end of the current year.
- The company’s platform meets all the needs of potential customers.
- KnowBe4 is integrating social engineering techniques into its platform, which its nearest competitors are not doing.
The risks of investing in the company’s securities include:
- The company is still unprofitable and does not plan to pay dividends. Net loss reduction is unstable.
- The company’s revenue growth rate will decline.
- KnowBe4 competes with large multinational companies that have large financial and intellectual resources.
IPO details and KnowBe4 capitalization estimate
The public offering will take place on April 22nd. The company expects to sell 11.8 million ordinary shares at a price ranging from 16 to 18 USD per share. The volume of attracted may amount to USD 212.4 million if placed at the upper border of the price range. KnowBe4 has raised USD 158 million in previous funding rounds.
The underwriters of the placement were leading investment banks: Piper Sandler & Co., Needham & Company LLC, Cowen and Company LLC, Canaccord Genuity LLC, Truist Securities, Inc., Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, KKR Capital Markets LLC, Citigroup Global Markets Inc., UBS Securities LLC, Robert W. Baird & Co. Incorporated and BofA Securities, Inc.
After the IPO, KnowBe4’s capitalization may reach USD 2.84 billion. To assess the growth potential of shares in the lock-up period, we use the P / S ratio (multiplier) (capitalization / revenue). After the placement, the P / S will be 16.24 (2.84 / 0.17488). For the technology sector, the multiplier reaches 25, which creates an upside for the company’s shares at the level of 54.03%. Therefore, I recommend considering KnowBe4 for medium and long-term investments.
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