Andrew Nowinski is Managing Director and Senior Research Analyst of D.A. Davidson & Co.
Mr. Nowinski joined D.A. Davidson in 2019 after working for the previous eight years with Piper Jaffray, where he was a top-ranked analyst covering security and software infrastructure. He previously was an analyst with Raymond James, following work as a senior software engineer.
He earned an MBA and bachelor’s degree in business from the University of Minnesota’s Carlson School of Management.
Mr. Nowinski is part of a team of award-winning analysts whose coverage focuses on nearly 400 publicly traded companies in select industry verticals, including technology, financial services, consumer and retail, diversified industrials and services, and real estate.
D.A. Davidson’s Equity Capital Markets group provides capital markets services and products that include investment banking, institutional sales, trading, research and corporate services. The firm’s industry-driven research team is supported by a dedicated group of sales and trading professionals.
In this 3,049 word interview, exclusively in the Wall Street Transcript, Mr. Nowinski analyzes the software security market and picks some outstanding investment opportunities.
“More people are working remotely now, and hackers try to take advantage of that. With more people working remotely, they have to connect to their corporate networks via VPN, likely using home PCs or unprotected laptops.
If a hacker was able to place malware on your PC or laptop, that malware could gain access to your corporate network whenever you connect via VPN. You would essentially be walking malware into your corporate network right through the front door…”
The methodology was business practice oriented:
“We recently published a very simple framework for the stocks that we think will weather the downturn better than others. And what we said was, first, the solution needs to be a critical component of the infrastructure.
And then second, it needs to be cloud-based, which is easier to deploy, and then third, it needs to support remote workers given that all companies are now requiring employees to work remotely.”
Back in April, Mr. Nowinski picked some 2020 winners:
“So we’ll start with Zscaler. So Zscaler is a 100% SaaS solution, software as a service. It doesn’t require any hardware at the customer site. Number two, they’re growing revenue north of 50%.
Their two core products are called ZIA and ZPA. ZPA directly benefits or helps users connect from their home office back to their corporate network.
So we believe Zscaler’s ZPA service is directly benefiting from the COVID-19 pandemic, which is driving up their revenue growth. And then, when those employees presumably return back to their corporate office, hopefully in a few months, they may add on additional license for ZIA.
We also like CrowdStrike because it’s another high growth SaaS name. All of their products are built off of a single software agent. They’re the only vendor that can track malware on your endpoint over time. And the “over time” component is the key differentiator for CrowdStrike.
Oftentimes, very sophisticated malware can change, can morph into something much more malicious over a period of three to six months. CrowdStrike uses the cloud and their Threat Graph database to analyze that malware over time.
This enables them to block that malware when it does become more malicious. It really is the best endpoint solution in a $20 billion market. We think they can continue to grow at a very high pace indefinitely.
Next, with regard to Okta, they offer a cloud-based SaaS solution for single sign-on and multifactor authentication. It simplifies how users log in to their applications and also reduces the attack surface area. You sign in once to their dashboard, and their dashboard or their platform then logs you into the 50-plus applications you might have access to. That’s their flagship product.
But they’ve built many other products off of that as well, where they can provide multifactor authentication and other tools for securing access to your application, and it could be either cloud-based applications or even on-premise applications.
That’s another company that is growing north of 50%, and we think they will continue to build out their platform, enabling them to keep that growth rate going at that pace.
And then finally, Proofpoint, which as I said is a cloud-based e-mail security solution. So when companies transition from on-premise Microsoft Outlook to a cloud-based solution like Microsoft Office 365, they want to move their e-mail security with it to the cloud. Proofpoint provides a cloud-based e-mail tool, which is best-in-class at stopping malware.
They don’t just scan for known malware threats, but they look for links and attachments inside your e-mail and follow those links and attachments to their original source to block them before they ever get to your inbox.
So if Proofpoint determines that there’s some malicious content in that e-mail, you’ll never even see it in your inbox, so it won’t infect your data center or the rest of your applications. There’s no opportunity to click on that link because they’ve already deemed it malicious.
So it is a best-of-breed solution. And at a time when more hackers are sending in these e-mail phishing attacks, it’s a really important tool to have. They are growing revenue in the 20% range, but we believe that given the influx of phishing attacks, the demand trends are actually very strong right now and should remain strong going forward for the remainder of the year.”
Andrew Nowinski also made some additional 2020 predictions back in April:
“Another one in our survey that also benefited is Mimecast (NASDAQ:MIME). We don’t actually cover Mimecast, but they’re an e-mail security provider with a very good platform. And that’s one that we also saw pretty strong demand for.
On the firewall side, the firewall vendors, like Fortinet (NASDAQ:FTNT), had decent results because I think the biggest downturn in demand really happened in the last two weeks of March. And we think Fortinet likely put up a good March quarter. But we’re more concerned with the pipeline for Q2 as it relates to Fortinet.
The pipeline in Q2 looks like it’s getting more challenging. It is going to be more challenging to implement firewall refresh deals in Q2, especially if we’re still in quarantine during that time period. So we are a bit concerned with Fortinet and their ability to guide above the Street for Q2.
Now, we just upgraded SailPoint (NYSE:SAIL) yesterday. SailPoint’s results in the survey were not great and were still net negative overall, but the results are getting better. It’s not as bad as it was in Q4. And we saw a 50% increase in their cloud solution; that’s called IdentityNow.
Over 50% of revenues from resellers were generated from their IdentityNow solution, and that’s up from 33% last quarter. So that’s a big driver of valuation. And that’s one that we think will help them put up good numbers in Q1.
And then second, their pipeline for Q2 actually looked fairly promising. They had the second-best overall pipeline heading into Q2. So we upgraded SailPoint, and that’s trading at about 3.2 times EV to sales. We felt like the valuation is largely washed out at this point, particularly with survey results getting better. So that’s how we’re positioning for these companies that are set to report.”
Get the entire 3,049 word interview with Andrew Nowinski, exclusively in the Wall Street Transcript.