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Slowing Sophos Growth: Timely Security Market Reality Check

Sophos is still growing -- just not fast enough to meet investors' lofty expectations. Indeed, the security company's stock fell 25 percent today after Sophos warned of slightly lower billings as hardware and sales to new customers fell.

This is the second time in recent months that Sophos shares have taken a huge hit. The company's stock fell 39 percent during a similar warning back in early November 2018.

It's important to keep in mind: Sophos truly is still growing. In fact, revenue has increased 14 percent during the first nine months of the company's fiscal year -- thanks to growing demand for the company's subscription services. It's a safe bet that MSPs are growing much of that subscription growth. The company's Sophos MSP Connect channel program and Sophos Central dashboard are widely respected by MSPs.

Still, today's steep stock decline offers a timely reminder: Many security stocks have been priced for perfection. Plus, venture capitalists are pouring gasoline on the security fire -- pumping a record $5.3 billion into the market in 2018, up a lofty 20 percent from $4.4 billion in 2017, according Strategic Cyber Ventures.

Fast forward to present day. Earnings season is just kicking off. Is the Sophos financial warning an isolated event -- or a sign that the overall security market is due for a correction? We'll be watching.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.