Big Upside in This Little-Known Stock
Have you ever received phishing e-mails?
For a lot of people, the answer is yes. An example would be an e-mail that looks like it’s from a bank, but it’s really not. It directs the e-mail recipient to a fake web site which, again, looks like a legitimate bank web site. When the recipient enters personal information into the fake web site—which often consists of usernames and passwords—the sender obtains that information.
Phishing is not the only thing that e-mail users need to be aware of these days. Cybercriminals are also attacking e-mail inboxes with malware and ransomware.
If you rarely use your computer and have no important files or information stored on it, the damage from a ransomware attack may not be that much. For big corporations, though, a cyberattack could lead to hundreds of millions of dollars in losses.
For instance, back in 2017, a ransomware outbreak called “NotPetya” cost global shipping giant FedEx Corporation (NYSE:FDX) a whopping $300.0 million in just one quarter. (Source: “FedEx Corp. Reports First Quarter Earnings,” FedEx Corporation, September 19, 2017.)
Needless to say, companies around the world are investing millions and millions of dollars in technology that can protect them from cyberattacks. Since e-mails are the most common way through which ransomware is delivered, securing them has been a priority at almost every office.
For companies that provide e-mail security services, increased corporate spending on this issue has provided a big boost to their business.
Zix Corporation (NASDAQ:ZIXI) happens to be one of them. The company offers a wide range of cybersecurity solutions, such as e-mail encryption and data loss prevention, advanced threat protection, unified information archiving, and bring-your-own-device mobile security.
Headquartered in Dallas, Texas, Zix is one of the leading players in the business. It serves more than 21,000 customers primarily from highly regulated industries such as healthcare, finance, and government.
While the increasing cybersecurity spending seems to be a new trend, Zix is not a startup. To give you an idea of how established the company is, here are some numbers:
Some 30% of U.S. banks and more than 1,200 U.S. hospitals are already clients of the company. (Source: “A Trusted Leader in Email Security,” Zix Corporation, last accessed January 21, 2019.)
Zix’s customers also include all U.S. Federal Financial Institutions Examination Council (FFIEC) regulators, divisions of the U.S. Treasury, and the U.S. Securities and Exchange Commission (SEC).
Among Zix’s huge customer base, around 700 of its enterprise clients have more than 1,000 full-time employees each.
And while the company has gotten some really big customers, its revenue stream remains well diversified. No single customer accounts for more than two percent of Zix’s total revenue.
All this is promising for the value of ZIXI stock.
A Booming Business
The neat thing about providing e-mail security services is that the business is subscription-based.
That means when Zix Corporation acquires a new customer, it’s not just making a one-time sale. Instead, that customer is expected to keep paying Zix for using its service going forward.
Of course, the customer may also cancel the service. But note that Zix’s business boasts very strong renewal rates, achieving approximately 90% in net dollar revenue retention.
The best part is that this recurring business is also growing.
Based on preliminary results released earlier this month, Zix’s full-year 2018 revenue is expected to reach a record $70.3–$70.4 million. That would be an increase of about seven percent from 2017. (Source: “Zix Reports Preliminary Fourth Quarter and Fiscal Year 2018 Results,” Zix Corporation, January 15, 2019.)
Notably, the company’s new first-year orders are expected to have grown 20% in 2018. And with a subscription-based model, new orders will likely translate to more recurring revenue down the road.
Furthermore, in an era when plenty of new hot tech companies are taking losses, ZIXI is already profitable. As a matter of fact, the company has been making profits for seven consecutive years.
Despite Zix corporation’s solid business and the cybersecurity industry’s bright outlook, ZIXI stock trades at just over $6.00 apiece. In fact, the company only climbed above the penny stock threshold of $5.00 per share as recently as last year.
As corporations continue to spend record amounts of money on information security, Zix could keep earning record-high revenue. When more investors notice the potential of this e-mail security firm, its stock could get a lot more expensive.