Investors put a premium on expectations-beating growth. That’s why it’s profitable for investors to buy stock in founder-led technology companies — Amazon comes to mind — that keep beating expectations years after their founder presides over the company’s initial public offering.
When the successful founder passes the baton, investors must decide whether to sell the stock or to bet on the successor.
While betting on Jeff Bezos’ successor has not yielded high returns, a wager on the corporate heir to Udi Mokady — who until April 2023 was co-founder and CEO of information security provider CyberArk — has been hugely profitable.
How so? Under Bezos, Amazon stock rose at an average annual rate of 35.3% between its May 1997 IPO, according to Inc.,; while Andy Jassy — CEO since July 2021 — has presided over a 2.7% average annual stock price increase.
During Mokady’s tenure as CEO since the CyberArk’s September 2014 IPO, the stock has increased at a 20.6% average annual rate while Matt Cohen, his successor since April 2023, has presided over a 56.2% average annual rise in the stock.
After interviewing Cohen this month, I think CyberArk shares could rise further due to the following reasons:
- CyberArk reported expectations-beating Q3 results and forecasts;
- CyberArk is investing in new growth engines;
- CyberArk’s excellent CEO succession process; ; and
- Analyst optimism about CyberArk’s prospects.
CyberArk’s Expectations-Beating Third-Quarter 2024 Performance And Prospects
On November 13, CyberArk announced Q3 2024 earnings that exceeded expectations and raised its guidance above the consensus, noted Investing.com.
Here are the key numbers:
- Q3 2024 revenue: $240.1 million — up 26% and $6 million higher than forecast, according to Investing.com.
- Q3 2024 earnings per share: $0.94 — a 124% increase that exceeded the analyst consensus by 44 cents, noted MSN.
- Q4 2024 earnings per share forecast: $0.70 — the midpoint between $0.65 and $0.75 — 15 cents above the consensus, according to Investing.com.
- Q4 2024 revenue forecast: $300 million — the midpoint of a range between $297 million and $303 million — which is $41 million ahead of consensus, Investing.com reported.
- 2024 revenue forecast: $986 million — the midpoint of “a range between $983 million to $989 million, marking an expected growth of 31% to 32% over 2023,” Investing.com noted.
“CyberArk reported strong results and outperformed guidance across all metrics. Our best-in-class execution and industry leadership in identity security is helping us deliver strong net new ARR, record revenue and increased profitability and cash flow,” Cohen said in a statement.
“We continue to deliver on our vision of securing every identity – human and machine – with the right level of privilege controls. Demand for our solutions remains strong as customers continue to embrace our industry leading solutions across workforce, IT, developer and machine identities.”
CyberArk sees sustained market demand for securing multiple identities with privileged access to enterprise computing systems. “Given the tremendous market opportunity, the mission critical nature of securing all identities, and durable demand drivers, we are confidently raising our guidance for the full year 2024 across all metrics,” Cohen added.
CyberArk’s Compelling New Sources Of Growth
To avoid becoming too dependent on markets that mature and decline, companies must invest in new sources of growth. CyberArk has invested in such new sources of growth while outperforming rivals in the criteria customers use to pick their winning suppliers.
More specifically, CyberArk has broadened what constitutes its primary end user. “When CyberArk was started 25 years ago, the theory was to protect the IT administrator who had the most privileged access to a company’s computing resources,” Cohen explained in a November 15 interview.
Since then, the nature of the privileged user has broadened and CyberArk has adapted accordingly. “Now all identities can be privileged,” he said, “There is privilege sprawl.”
The company’s platform enables chief information security officers to protect all four classes of privileged users — IT administrators, workers, developers, and machines. “Employees who access Workday can have privileged access,” explained Cohen. “Developers working on cloud services like AWS can do whatever they want. AI agents are a new class of identities that can get privileged control.”
CyberArk understand what criteria corporate information security decision makers — the CISO or chief information officer — use to select the winning supplier. “We win because of our 25 years of experience in the business and companies’ desire to consolidate many security vendors into one — which our platform makes possible,” Cohen told me.
At the core of CyberArk’s success is a mindset of cognitive hunger — “a desire by some “leaders to keep learning and solving new problems,” noted my book Brain Rush. These leaders adapt to changing headwinds, invest in new areas of growth, and ultimately develop great successors so their company can keep growing after they depart.
CyberArk embodies this approach. “Udi always said the company should be productively paranoid,” Cohen told me. “Although PAM has legs — it is still growing in the mid-teens — we should think about what will disrupt our original business,” he added.
Israel — where CyberArk’s R&D is located — is known for its skill at cybersecurity. “They are constantly evaluating the threat landscape for new opportunities to keep us growing,” he explained. “To realize our mission of securing organizations, we watch customers to see where attackers are going.”
To secure organizations from emerging threats and thereby create new growth vectors, CyberArk makes acquisitions — for example, in October 2024 the company completed its $1.5 billion purchased of Venafi, a machine identity security provider. CyberArk is also developing solutions to defend against new threats — such as AI bots and post-session hijacking after a user has completed two-factor authentication, he explained.
By the end of the decade, quantum computing is expected to develop to the point where it will become “possible to hack into the existing RSA cryptography algorithm,” Cohen said. CyberArk is aiming to solve to this problem.
CyberArk’s Excellent CEO Succession Process
Leaders who do not manage succession well often have a different mindset — cognitive lock-in — which can inhibit a company’s long-term success. Such leaders stop learning – making it difficult for their organizations to adapt to changing customer needs, new technology, and disruptive competitive strategies, according to Brain Rush.
Not long after CyberArk’s 2014 IPO, Mokady realized he would not be CEO forever. He decided it would be better to develop his own successor while things were going well, noted my May 2023 Forbes post. “Nine out of 10 CEOs wait for an external event to solve that problem,” Mokady told me.
To that end, he hired Cohen. “I decided to make the change when the sky was blue. I hired a strong chief operating officer — Matt Cohen. We worked together to create a well-defined role which puts him in day-to-day charge of customers, partners, and strategy.”
Mokady’s ability to let go sprang from his desire to develop people who were willing to grow. “I could not understand why venture capital firms put caps on what an executive could do,” he said.
“They would hire a vice president of sales for a $10 million company and then replace the person when the company got much bigger. I think people are always growing. I would help someone grow from an engineer, to a sales engineer, to chief revenue officer. I wanted to develop people who were willing to grow, learn, and seek mentors — to always be learning,” he added.
How Cohen Became CEO Of CyberArk
Cohen offered his perspective on how he became CyberArk’s CEO. “I had spent 17 years at PTC and received a random call from a recruiter,” Cohen told me Nov. 15.
“Udi makes you feel like you’re missing out if you’re not working at CyberArk. Five months later I joined the company as chief revenue officer. Then I became chief operating officer. I was responsible for all go-to-market activities and post-sales,” he added.
“I had the desire to be CEO. He had a desire to transition out. Two years later he felt comfortable the organization knew me well enough. Udi put me in charge of operating and financial planning and running offsite meetings.”
Mokady — who spurred a culture of people who are smart, bold, and humble — stepped into the Executive Chair role and ceded the CEO position to Cohen. “We meet every week,” Cohen said. Udi “asks ‘How can I help you?’ He stays out of the way.”
Mokady developed the skills Cohen needed to take control. “Before becoming CEO I had to learn new skills including dealing with the investor community and analysts, product strategy, and managing a company with headquarters in Israel and the U.S.,” Cohen told me.
Although Cohen’s strength is not inventing new technology, he is able to identify the most innovative people within the company, connect with them, and empower them to turn their ideas into new products. CyberArk’s reputation as a leader in its field enables the company to recruit outstanding new talent, he said.
Sustaining CyberArk’s Cognitive Hunger
Cohen — who majored in psychology at Harvard College — aims to guard CyberArk from cognitive lock-in. “Cognitive lock-in is everywhere,” he said.
“It manifests itself in a lack of introspection and lack of self-awareness. A company won’t benefit if that lock-in persists. Are we challenging ourselves or just listening to our own ideas?”
He described three mental models for leadership. The lowest is receiving a stimulus and responding immediately. At the next higher level, leaders consider options before responding. And at the highest level, leaders brainstorm creative options before picking the best course of action.
The lowest level of his model can be bad for a company’s future. “You know you are at the lowest level if someone tells the CEO about a competitor’s new product, and the CEO says, ‘Ignore it. They’re no good,’ ” he told me.
“Or someone tells the CEO the customers are asking for a new product and the CEO says, ‘We know better than customers.’ If that happens, you lose the team,” Cohen added.
Mokady and Cohen collaborate to keep cognitive lock-in out of CyberArk. “Once a month Udi and I meet to discuss anything the other thinks we need to hear,” Cohen told me. “One of us might say, ‘Maybe you’re not thinking about this.’ Nothing is left unsaid.”
Analyst Optimism About CyberArk’s Stock
Does all this mean investors could benefit from buying CyberArk stock? Based on 27 Wall Street analysts offering 12 month price targets, the stock could rise 13.43% before reaching the average price target of $346.28 a share, according to TipRanks.
Two analysts are bullish on the company:
- High growth potential. “We believe the company’s ability to manage all identity types in a variety of deployment environments, increasing number of use cases, technology innovation, and high recurring revenue, have positioned it strongly for durable growth going forward,” Truist Securities analysts said in a post-earnings note featured by Investing.com.
- Outperforming cybersecurity industry. “A strong report during what has been a fairly soft earnings season so far in security software,” BTIG analysts noted, according to Investing.com.
If CyberArk continues to surpass analysts’ expectations, the company’s stock could continue to reward investors.
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