⚔️ Does Palo Alto Have An Inflation Firewall?

Snap CEO warns of revenue, profit miss.

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⚔️ Palo Alto Networks: Future-Proof Business?

Inflation, supply chain issues, and downbeat forecasts. That’s been the quarterly results theme for everyone from retailers to big tech and everyone in between. Palo Alto Networks (PANW) is a notable exception – it raised guidance and sees no inflation pressure! What gives?

Zero Trust Networks!

A firewall protects data residing in a network from being accessed by unauthorized people on the outside. In simpler words, a firewall is a barrier between a private internal network and a public one. Back in 2004, Israeli-American Nir Zuk, who worked for Juniper Networks, realized that existing firewalls used by companies were based on designs that had become redundant.

Zuk resigned from Juniper in the following year and raised a seed round from investors like Greylock and Sequoia. He founded Palo Alto Networks the following year, intending to build the next-generation firewall product. Palo Alto Networks went public in 2012, becoming the fourth-largest tech IPO of the year.

Palo Alto, along with Fortinet, McAfee, and Symantec, founded the Cyber Threat Alliance in 2014. The not-for-profit organization shared intelligence on cyber threats with member organizations. By 2018, companies like Cisco, Juniper Networks, and Sophos joined the group.

In 2018, some high-profile names joined Palo Alto. Former Softbank President Nikesh Arora joined as Chairman & CEO. Liane Hornsey, former Chief People Officer at Uber, came in as Chief People Officer. Former Google Cloud President Amit Singh became Palo Alto’s President in October 2018. In October 2021, he was named the Chief Business Officer.

Some of Palo Alto’s products include securing hybrid workforces, stopping evasive threats in real-time, securing the home and small businesses, and automating security operations. In addition, it began to develop Zero Trust Network Access as a replacement for Virtual Private Networks (VPNs) when it became clear that most VPNs could not adequately scale to protect the customer.

Earlier this month, Palo Alto unveiled the ZTNA 2.0, which offers layer 7 threat deterrence, elevates the level of security, and reduces operational overhead. Today, Palo Alto Networks boasts over 85K customers in over 150 countries, including 85 Fortune 100 companies.

Firewalls Everywhere!

In Q3 2022, the company not only surpassed estimates but also raised guidance for the full year.

Key Highlights From Q3 FY22:

  • Revenue: $1.39B Vs $1.36B expected
  • Earnings Per Share: $1.79 Vs $1.68 expected

For the first time, Palo Alto had crossed the $1B in revenue per quarter mark back in Q2 2021. Since then, it has consistently outdone itself every quarter. In Q3 2022, revenue increased 29% Y-o-Y after growing 30% Y-o-Y in the previous quarter.

Russia’s attack on Ukraine and the cyber angle to the war has meant Palo Alto has received a lot of interest from corporations and government agencies across Europe. Total billings were up 40% at $1.8B.

For the current quarter, the company expects to earn $1.54B in revenue, a growth of 26% from the same period last year. For the full year, the company expects revenue to touch $5.49B (up from the earlier estimate of $5.45B); EPS is likely to be at $7.46 (up from $7.30 estimated earlier); product revenue to be up 20+% Y-o-Y as against earlier estimate of mid-teens growth percentage.

The company doesn’t see inflation as a concern since the awareness and the demand for cybersecurity are taking precedence over everything else. Higher component and shipping costs dented the company’s gross margins for the quarter, and the company expects these higher costs to persist for another year.

During the quarter, the company also launched its next-generation firewall, exclusively available through Amazon’s public cloud. It also launched a tool to help companies detect vulnerabilities in software supply chains.

Shares of Palo Alto Networks are down 12% this year but have returned 800% over the last decade as a public company. The global network security firewall market is likely to reach $24.3B by 2030, with a 21.6% CAGR. Investors, for their part, can only hope Palo Alto will continue to corner a higher share of that growth for the foreseeable future! Inflation-proof indeed!

Market Reaction
PANW ended at $500.27, up 4.51%.

Company Snapshot 📈

PANW $500.27 +21.59 (4.51%)

Analyst Ratings (37 Analysts) BUY 92%  HOLD 8%  SELL 0%

Newsworthy 📰

Alarm Bells: Snap shares plunge after CEO warns company will miss revenue and earnings estimates, slow hiring (SNAP -30.97%) (Afterhours)

Confidence: JPMorgan shares pop after bank says it will reach key returns target earlier than planned (JPM +6.19%)

Mega Deal?: Broadcom in talks to pay about $60B for VMWare; deal may be announced on Thursday (VMW +24.78%)

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Today’s Fun Fact

The Pentium was the first Intel chip for PCs to use parallel, or superscalar, processing, which significantly increased its speed

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