FirstWave Cloud Technology Ltd (ASX: FCT) is a recent backdoor listing on the ASX through Crestal Petroleum Ltd earlier this year.
The company has been mentioned a few times by a number of analysts on Sky Business – perhaps because of the huge share price increase since 'listing' at 20 cents. Shares are now changing hands at 58 cents, giving FirstWave a market cap of around $74 million, and the company could have much further to run.
What does FirstWave Cloud Technology do?
FirstWave has developed a cloud-based security platform used by around 300 corporate customers and has a long-standing relationship with Telstra Corporation Ltd (ASX: TLS). Essentially, FirstWave's software operates like a combined firewall, gateway, filtering and security system. There are also individual modules for email, web content and firewall.
As you might imagine, this is a huge growth area given the potential threats to companies getting hacked, or their business disrupted in some way. The global Software as a Service (SaaS) market is expected to be worth US$105 billion in 2016 – with Security products making up 15% of this market – or $16 billion. Clearly a huge market for FirstWave to enter.
Security companies
ASX-listed companies also competing in that space include Covata Ltd (ASX: CVT), iWebgate Ltd (ASX: IWG) – which also has a relationship with Telstra and Senetas Corporation Limited (ASX: SEN). All the companies offer something slightly different of course – but security is a major factor in all their offerings.
Growth
The good news for FirstWave is that its technology is integrated into Telstra's network, and while the company is yet to become profitable, sales revenues of $6.4 million in the 2016 financial year were up 37% compared to the previous year.
The company's tender pipeline is rapidly growing, from 40 to more than 75 opportunities since market updates on July 22 and August 30. While FirstWave is unlikely to win all of them, the company also continues to win contracts from Telstra's enterprise customers.
Risks
Clearly, FirstWave is highly reliant on Telstra at this early stage of its life. Should that relationship sour for any reason, FirstWave could see a significant portion of its revenues dry up. To offset that risk, FirstWave is looking to roll out its products to other telecommunications and internet service providers around the world.
And then there are the competitors. For a quick glance at some potential competitors check out the members of the Cloud Security Alliance here. Plenty of those companies will and do provide security for cloud applications.
Foolish takeaway
In a hotly contested sector, FirstWave may have some advantages over its competitors, but as more software platforms migrate into the cloud, security will become an ever-more important factor. FirstWave may have a good shot at garnering its piece of the market, and I'll be watching closely.
