Palo Alto Networks (PANW, Financial) is the largest firewall vendor around the globe, which is probably why it has fared better than its cybersecurity counterparts over the last few months. Over time, cybersecurity demand has grown on the back of gradually rising cybercrimes. The company has successfully managed to take advantage of that great opportunity as its revenue has increased at a rate of over 40% throughout the past 10 quarters.
In the most recent quarter, the company reported earnings per share of 50 cents, in-line with the estimates, whereas revenue came in at $400.8 million, beating the estimates by $11.1 million. As per Identity Theft Resource Center, the figure of personal records exposed in data breaches globally reached 178 million in 2015, a surge of 50% compared to the same period a year ago.
This clearly suggests that business should be thriving for Palo Alto Networks, as it offers firewalls as well as other security solutions to numerous customers. Recently, the company added around 3,000 new customers, and now boasts approximately 34,000 customers around the globe. This is primarily due to the company’s upgraded next-gen platform, an end-to-end solution, and its driving surges in recurring revenue.
As a matter of fact, the company’s expenses are increasing and revenue growth is slowing down, which has adverse effect on its operating margin and GAAP profitability. That being said, the company’s non-GAAP profits are doing well and consensus projects its non-GAAP earnings to enhance 42% yearly during the imminent five years.
Most significantly, Palo Alto has finally shifted toward subscription services, and this has been the company’s enormous win this year. It has also aided the company in solidifying its top-line base for the coming years.
Apart from this, the company now produces more service sales, as well as the ongoing top-line that arrives with it, than products. This basically signifies a positive trend that displays no signs of decelerating in the near future.
Conclusion
With the cybersecurity market still growing at a rapid pace, Palo Alto Networks looks like a good bet, especially since the company is the market leader. Although the company’s revenue growth has fallen to under 50%, which is understandable given its size, the company is still well positioned to dominate the growing market. With peers like FireEye (FEYE, Financial) struggling with profitability and growth, Palo Alto Networks is definitely the right bet to profit from this booming sector.
Disclosure: I don't hold a position in the stocks mentioned in the article.
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