Cybersecurity stocks market darlings on rise of metaverse

Just a couple of years ago, the prevalent market view on the cybersecurity industry was that it would go downhill rather than prosper as public organizations and companies were largely armed with systems to protect themselves against hacking attacks.

Indeed, the global cybersecurity market’s annual growth rate slowed to 6.3% in 2019 from 21.4% in 2015, according to data from global market research firm IDC.

However, with the rise of the metaverse, a virtual world where people can connect, cybersecurity companies are becoming names to watch on South Korea’s stock markets, particularly after the hacking attempts last year at global metaverse giant Roblox Corp. to poach the personal information of 100 million users.

Recent cyberattacks even on multinational firms and institutions, deemed to have strong security systems, have raised fears that they may be ill-prepared to beat off hackers.

Analysts say the need for tighter cybersecurity has grown with the increase in digital transactions of goods with economic value such as cryptocurrencies or non-fungible tokens (NFTs).

Morgan Stanley expects the luxury goods market on the metaverse to grow to $57 billion by 2030.

DEMAND FOR INCREASED CYBERSECURITY

Genians Inc., a Kosdaq-listed network security firm, saw its shares rise nearly 20% in the past two sessions. The stock gained 9.6% at 11,400 won in early Friday trade on the tech-heavy junior market. It has risen 73% so far this year, with the company’s market capitalization ballooning to over 100 billion won ($85 million).

Other cybersecurity-related companies listed on the Kosdaq market have also outperformed the broader market.

Aton Inc., a Korean fintech security company, has risen over 70% year to date, while Fasoo Co., a data security and management firm, has gained 36%. RaonSecure Co., which offers authentication services on mobile banking platforms, has advanced 19%.

“In the era of the metaverse, an increased level of cybersecurity is a must for digital information that can easily turn into big money,” said an executive at Genians. “A new market has opened for investors looking for promising tech companies.”

Reflecting the growing interest, a number of brokerages have started rating or upgraded their price target on such firms.

KB Securities recently chose Fasoo as its top pick in the cybersecurity sector, set to benefit from the growing popularity of the metaverse.

The data security company is the world’s first to commercialize digital rights management (DRM) tools, which allow organizations to protect, control and track sensitive documents to meet the internal and regulatory security requirements.

Over 1,200 institutions and companies around the world currently use Fasoo’s DRM solutions.

COMPETITION IN METAVERSE

Competition has been intensifying in the global metaverse sector. Facebook recently said it will invest $50 million in the metaverse. Roblox acquired Guilded Inc., an operator of a platform to connect gaming communities, while Epic Games, the developer of the hit game Fortnite, raised a $1 billion round of funding for the business.

“NFTs are blockchain-based, so they can’t be reproduced or counterfeited. But their original digital files are exposed to risks of being hacked,” said KB Securities analyst Yoon Chang-bae.

Market analysts expect Aton, the fintech security company, to raise its revenue and operating profit to 50 billion won and 10 billion won, respectively, next year.

Genians is also one of the coveted stocks, given the growing importance of network security.

The company is Korea’s top provider of network access control (NAC) systems, which ensure full network surveillance for connected devices.

With annual sales of 20 billion won, Genians also specializes in endpoint detection and response (EDR) systems, which detect connected devices’ abnormal behavior caused by misconfigured settings, violated policies and security vulnerabilities.

Miri Capital Management LLC, a US-based investment advisor, holds a 9.1% stake in Genians.

Write to Yun-Sang Ko at kys@hankyung.com
In-Soo Nam edited this article.