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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
For a company that made its fortune dishing up answers, Google is surprisingly coy when the questions relate to its own finances. The search-engine giant is paying $32bn to acquire cyber security company Wiz, reanimating a deal it first explored last July. It’s a logical move for parent company Alphabet. But like its clients’ data, the financial benefits of this purchase are stowed safely in the cloud.
Wiz has grown prodigiously by offering cyber software that maps out a company’s vulnerabilities from 30,000 feet — what tech folks refer to as an “end-to-end” approach. Its four ex-Israeli army founders took their brainchild from “annual recurring revenue” of zero in 2020 to $350mn in 2023. TD Cowen analysts reckon it grew 70 per cent in 2004; the company plans to hit $1bn at some point this year.
That is a rare feat. By way of comparison, it took security group Palo Alto Networks more than a decade from its founding to achieve a 10-digit top line. The same goes for enterprise software company Salesforce. Google boss Sundar Pichai, however, might see in Wiz a kindred spirit: the search behemoth he runs managed it in five years.
Exceptional as that might be, Alphabet is paying a high price. If Wiz indeed reaches $1bn of revenue this year, the deal values it at 32 times sales. The only large tech companies that beat that are digital defence hotshot Palantir and bitcoin-hoarding MicroStrategy. Rival cyber outfit CrowdStrike trades on a relatively humble 18 times, according to S&P Capital IQ.
Moreover, the price is nearly 40 per cent higher than Alphabet offered last summer, in a deal that subsequently fizzled. No doubt Wiz’s founding foursome want a premium that compensates them for the risk that this combination too fails to launch. Antitrust remains a risk. That may explain Google’s pledge that Wiz customers can use its services on other companies’ clouds too.
In the cloud, eight months is admittedly a lifetime. Google recently announced a $75bn investment spree to back its AI ambitions. Analysts reckon cloud services will produce $100bn of revenue in 2028, according to Visible Alpha — $10bn more than they were estimating back in July. More AI means more data, which means more need for reliable cyber security. That has driven up valuations for Wiz peers such as Palo Alto and Fortinet too.
What hasn’t changed is that Google seems little concerned about what investors think. Just as it declines to say where its capital expenditure goes and for what kind of expected returns, the company’s announcement of its biggest acquisition contained just one financial number: the price.
That’s not unusual in Silicon Valley: Facebook’s $19bn acquisition of WhatsApp in 2014 was similarly light on detail; unlike Wiz, that purchase brought almost no revenue. Investing in tech firms is still about trusting the vision more than crunching the numbers. And if cyber security is about keeping valuable data locked up tight, Pichai has that down to a fine art.
