Description
Alarum Technologies Ltd. (Nasdaq: ALAR)
Alarum is a fast-growing Israeli SaaS company that enables businesses to scrape internet data at scale via IP proxies so they can better understand competitors and develop datasets for training artificial intelligence models. This is a quick writeup to share some background on this interesting business and generate some discussion.
Alarum is a provider of web data scraping-enabling IP proxy tools utilizing a global network of IP addresses based in Tel Aviv, Israel. The company began as a cybersecurity company, where it was subscale versus larger competitors like Palo Alto and Crowdstrike. Alarum pivoted to IP proxy network services when it purchased NetNut in 2019 and later decided to sell off and write-off most other operations. NetNut has grown rapidly since then to become the company’s primary source of revenue and profits.
NetNut provides value to its customers because it can simulate actual web users to gather accurate, timely data based on a range of geographies while allowing the end-collector to remain anonymous to rivals on whom they are gathering information. NetNut works with internet service providers across the world to utilize millions of dynamic and static IP addresses to access data in an automated way.
As more businesses are moving online and using more sophisticated pricing algorithms, NetNut helps retailers or aggregators ensure they offer competitive pricing tailored for shoppers across the globe. Key industries include online retailers or air travel aggregators.
The company is extending its offering beyond the proxy tool. They launched artificial intelligence-enabled data scraping tools in February 2024. In 2025, they are planning to build on those offering to sell collected data insights, according to an interview with CEO Shachar Daniel on April 2.
The data collection industry is valued at $2.2b as of 2022 and expected to expand at annual growth rates of 28.9% to $17.1b in 2030, according to Grand View Research industry data. A subset of that overall market is the IP proxy service market, where NetNut competes with industry leaders EMK Capital-owned Bright Data and Oxylabs Networks. Bright Data was acquired by EMK Capital for 5x revenue in 2017.
Alarum’s rapid growth and messy financials make it challenging to come up with future projections. There’s a wide range of potential outcomes depending on the growth of NetNut, how successful Alarum is in capturing more wallet-share from new adjacent offerings, and whether management makes bad acquisitions or dilutive share offerings.
Alarum generated $26.5m of revenue in 2023 and recorded a net loss of $5.5m. The loss was due to a write-down of its CyberKick security goodwill and intangible assets in 2Q2023. The parent company level results masked the strong growth underlying profitability of the NetNut business as Alarum transitioned from cybersecurity to the IP proxy business. The below slide from Alarum’s latest investor presentation provides a sense of the rapid growth:
Alarum provided preliminary results for the first quarter 2024 on April 8. The company’s revenue rose nearly 50% yoy to reach $8.3m in Q1. NetNut standalone revenue grew 140% yoy. Alarum’s overall cashflow from operations was $3.2m in Q1 vs –$0.3m during the year prior quarter.
We expect these growth trends to continue this year as companies continue to spend aggressively on data-gathering and artificial intelligence.
Management has a long history of operating unprofitable cybersecurity businesses before acquiring NetNut in 2019. They made a bad investment in CyberKick in 2021 where they paid out $3.7m in cash and 13.5% of outstanding shares to its founders. They recorded a $6.3m impairment on the CyberKick acquisition in 2023.
The company also did a private placement to insiders and friends in September 2023 that was priced at $2.27 per ADS that raised $5m. The Chairman, CEO, and CFO all participated in the offering with the non-insider participants providing the Chairman and CEO a loan to fund their purchases. The placement came as insiders could see the trajectory of NetNut take off and coincides with their decision to focus on NetNut, while moving away from unprofitable business lines. On the positive side, it seems this may have motivated them to focus on profitability.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.
Catalyst
The catalyst for re-rating could be:
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Alarum continuing to report strong growth in 2024.
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Better screening financials as Alarum’s legacy cybersecurity results are lapped and the pure-play metrics for NetNut become more visible.
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Potential acquisition interest from larger competitors and private equity.
