Company bio
Company History
Palo Alto Networks (Palo Alto Networks, ticker: PANW) was founded by Israeli-American Nir Zuk in 2005. Zuk was once the famous first-generation firewall listed company Check Point (ticker: CHKP ) and NetScreen Technologies, and was the lead developer of the first stateful inspection firewall and the first intrusion prevention system. Zuk created Palo Alto Networks to solve a problem businesses face with existing network security solutions: Firewall systems that don’t allow users to safely and easily use modern programs that recognize and provide finer-grained security controls.
Main product
Palo Alto Networks’ core product is a network security platform, including advanced firewalls and various cloud-based security control related products. These products expand the basic functions of the firewall to cover other security needs. At present, the company has more than 70,000 corporate customers, including 85 companies in the Fortune 100.
What is special about Palo Alto Networks?
Business still grow
Network security is an old software field that has existed since the Internet. Over the past few decades, related listed companies of various sizes and scales have been listed, but few listed companies in this field can continue to exist. Only a few can make the company’s business continue to grow. Palo Alto Networks is one of the very few listed companies in the field of network security that can continue to grow and operate for more than 20 years.
Focus on internet
Many cybersecurity firms still garner most revenue from on-premise products. Palo Alto’s growth is coming from customers that access cybersecurity products and services remotely via the internet. This is also the main reason why Palo Alto Networks’ business is still growing as mentioned to investors in the previous paragraph.
Not firewall only
Firewall appliances protect computer networks by blocking online intrusions and monitoring web-based apps. However, Palo Alto Networks has expanded beyond firewall products and built a cloud computing-based services platform through acquisitions.
Keep innovating
Moreover, Palo Alto has been improving cybersecurity products with artificial intelligence tools, along with rival CrowdStrike Holdings (ticker: CRWD).
Operation and solutions
Growing Cyber Threats
The overall cybersecurity industry has experienced strong growth in recent years, with the Identity Theft Resource Center reporting a 68% spike in data breaches in 2021 (although they will have fewer breaches than that by Q3 2022 69%). Even so, it still represents more than 166.7 million victims.
However, despite this growth potential, the prospect of a recession affecting cybersecurity spending is a threat, especially in early 2023, when many analysts and economists say a recession is most likely.
During a recession, businesses may be more reluctant to invest in new technology or expand their cybersecurity budgets. It’s worth noting, however, that cybersecurity is often viewed as a necessary expense rather than a luxury, so businesses are likely to continue allocating funds to cybersecurity even in the face of economic challenges.
Next Generation Cyber Security
In addition to its strong presence in the cybersecurity market, Palo Alto Networks has also made strides in the software development industry. It has made several acquisitions in the space, including container vendor Twistlock and serverless security leader PureSec, which have helped strengthen its capabilities in the cloud security market. This focus on software development and cloud security is likely to drive further growth for the company in the years to come.
Next-Gen Security is also hot, with annual recurring revenue up 67% year-over-year, breaking the $2 billion mark for the first time. The NGS platform combines network and endpoint security with threat intelligence so customers can not only see detected threats, but also automatically defend against them while preventing cyberattacks.
Palo Alto Networks has also been innovating, developing many solutions designed to protect against advanced threats, such as zero-day attacks or attacks that exploit vulnerabilities without proper patches, as well as targeted attacks. These solutions use artificial intelligence and machine learning to analyze network traffic and identify potential threats in real time.
Turn into a money machine
Palo Alto Networks has seen strong growth in recent years, with revenue up 25% to $1.6 billion in the third quarter of 2022. This can be attributed to the company’s focus on innovation and ability to meet the changing needs of customers.
CEO Nikesh Arora said that Palo Alto Networks customers have increased their commitment to their cybersecurity platform because “they are able to choose our best-in-class capabilities and simplify their security architecture.” He continued, “We Focus on expanding the breadth of our offerings and our pace of innovation to continue driving share growth in the cybersecurity market.”
Importantly, Palo Alto Networks was able to grow its free cash flow generation to $1.2 billion in the third quarter of 2022, almost as much as it generated in the fiscal year ending in July.
Acquisitions
Through acquisitions, Palo Alto Networks has expanded into endpoint security and vulnerability management. Endpoint tools detect malware on laptops, mobile phones and other devices that access corporate networks.
In addition, Palo Alto Networks has pushed into a market called Secure Access Service Edge, or SASE. The security tools support distributed workers and branch offices.
Business outlook
Potential market
The cybersecurity market, where Palo Alto Networks is located, is expected to grow again in 2023. A recent survey of 1,400 enterprise information technology decision makers by cloud computing service provider Fastly (ticker: FSLY ) found that nearly three-quarters will increase their cybersecurity spending by 2023. Gartner (US: IT) estimates that overall cybersecurity spending could grow 11.3% to $188 billion in 2023 as organizations prepare to defend against growing threats to their information.
Global information security and risk management is expected to grow from $157.7 billion in 2020 to $188.3 billion in 2023, according to market research firm Gartner. This growth can be attributed to a variety of factors, including the proliferation of remote work, work models that deliver work results to enterprises through the cloud, and increasingly sophisticated cyber threats.
Perspective
Palo Alto Networks is already capitalizing on the market’s growing trends. It expects revenue to rise 21% to about $9 billion in fiscal 2023, which begins Nov. 1, and revenue to rise 26% to $6.9 billion. Given its large remaining performance obligation (RPO) valued at $8.3 billion, Palo Alto Networks is well positioned to meet or exceed that estimate. The metric, which measures the total value of outstanding customer contracts, rose 38% year-over-year last quarter, outpacing the company’s 25% increase in actual revenue.
Palo Alto Networks has a longer growth runway in the next five years, the next decade or more.
Main competitors
- CrowdStrike (ticker: CRWD): please see my previous post “How perform well and high growing CrowdStrike makes money?“
- Fortinet (ticker: FTNT)
- Cisco Systems (ticker: CSCO)
- Check Point Software Technologies (ticker: CHKP)
Related articles
- “How Palo Alto Networks, a rare long-term continuous and stable growth security giant, makes money?“
- “How perform well and high growing CrowdStrike makes money?“
- “Why Fastly shutdown thousands websites but its stock soaring 11%?“
- “Cloudflare, a rising star in cloud computing infrastructure“
- “Microsoft, the dominant overlord of cloud computing“
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