Cyren Ltd. (CYRN, Financial) is an established cybersecurity company, which was founded back in 1991. The company offers a variety of software-as-a-service cybersecurity products such as threat detection, malware detection and Threat InDepth.
Declining revenue and a lack of operating profitability have caused the stock to get butchered; it has now lost over 90% of its value since 2020.
Things got so bad that the company had to do a 1-for-20 reverse stock split to avoid delisting from the Nasdaq.
However, things don’t seem all bad as the new Cyren Inbox Security product grew annual recurring revenue year over year. Could this be the sign of a rebound? Let’s dive into the business model, financials and valuation.
Business model
Cyren has six offices globally from the U.S. and the U.K. to Israel. The company operates with a SaaS business model and offers a variety of security solutions. These include threat intelligence, sandboxing, DNS and email protection.
The Cyren Inbox Security product has proven to be popular with an 87% growth in ARR year over year. The goal of this product is to protect email inboxes from “phishing attacks.” Phishing is a common scam where a fraudulent email is sent with the intent to lure others into giving up account login details by pretending to be somebody else. A recent Sophos report found that 70% of organizations have seen increased phishing attacks since the pandemic began in 2020. It seems the vulnerable nature of people's mental psychology and the fact many are working from home made them easier targets for fraudsters.
Cyren’s plan is to sell the product as a specialist add-on for Microsoft Office 365. This is a smart move in my eyes as daily use of Office 365 has jumped by over 70% since 2020. The product is also now available on Palo Alto Networks' (PANW, Financial) Cortex XSOAR Marketplace, which, according to the company, is the industry's largest and most comprehensive security marketplace.
The company's strategy seems smart moving forward since the only major risk I see is the competitive nature of the email phishing security market.
A search for “Best Email Security Solutions for Office 365” brings up three links on Google. The first shows a swath of competitors in the market from Microsoft (MSFT, Financial) to giants such as Mimecast (MIME, Financial), Cisco (CSCO, Financial) and many more. The second link by Gartner shows 60 products by different vendors. Cyren’s product comes in at number 30 if sorted by number of reviews. The good news for Cyren is despite only 13 reviews compared to 349 for Mimecast and 186 for Microsoft, its product does rank higher with 4.8 stars overall. However, the small sample size of just 13 reviews is not enough to draw conclusions on the technical benefits. The third link on Google doesn’t even list the product, but shows a swath of competitors.
Unsecure financials
For full-year 2021, Cyren generated $31.2 million in revenue, down 14% from $36.4 million in the prior year. The CEO put this decline down to the legacy businesses and again highlighted the strong growth in ARR for the Inbox Security product.
As a SaaS business, the company produces strong gross profits, with $21 million produced at a 68% gross margin.
The company plans to spend $17.6 million on research and development and $10.8 million on sales and marketing, intending to gain market share in the email security industry. These investments and $9 million in general and administrative expenses caused the company to operate at a loss of $21.8 million. The investments may pay off, but in the meantime the risk is high. The on-balance sheet cash has reduced to just $4 million from $9.2 million in 2020, while Cyren has $8.5 million in convertible debentures (a type of long-term debt).
The good news is the stock trades at a very low price-sales ratio of just 0.25, which means an investor would be paying 25 cents for every $1 of sales. This is the lowest valuation the company has traded at historically, which means the stock is either deep value or a value trap.
Final thoughts
Cyren is an established small-cap company in the cybersecurity market. The email inbox security product has proven to be popular, so I think the company's strategy of targeting it as an Office 365 feature is smart. However, the market for these email products is very competitive. As such, I cannot see the unique factor of this company's offering.
The CEO states the company's “differentiated value proposition” is “both automated detection and response with simple deployment and integration with security awareness training solutions,” but I cannot see why other competitors cannot offer this. The good news is the market for phishing protection solutions is expanding and the stock could bounce back, but there are many risks ahead.
