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Palo Alto Networks: leading Cybersecurity inventory To purchase | Killexams.com Resources

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Palo Alto Networks, Inc. (NASDAQ:PANW) is a popular American cybersecurity business which include three different reportable segments: Product, Subscription, and support. This analysis delves into the enterprise's ascension to market leadership within the cybersecurity business in recent years, aiming to establish the key elements underlying its outstanding enhance in market share, with the aid of specializing in its strengths in network security akin to protection hardware and community security application.

salary by using section ($ mln) (FY Ending July)

2018

2019

2020

2021

2022

2023F

6-yr ancient general

Product

880

1,096

1,064

1,one hundred twenty

1,363

1,532

growth fee % (YoY)

24.2%

24.6%

-2.9%

5.three%

21.7%

12.4%

13.1%

Subscription

758

1,033

1,405

1,899

2,539

3,393

increase expense % (YoY)

38.1%

36.2%

36.1%

35.1%

33.7%

33.6%

38.8%

assist

636

771

939

1,237

1,599

2,018

increase rate % (YoY)

27.7%

21.2%

21.eight%

31.7%

29.3%

26.2%

29%

complete

2,274

2,900

3,408

4,256

5,502

6,943

increase fee % (YoY)

29.5%

27.5%

17.5%

24.9%

29.three%

26.2%

26.0%

source: Palo Alto, Khaveen Investments

The desk above indicates Palo Alto’s segment breakdown and the 6-12 months usual increase for every section. in accordance with the business’s annual file, the product segment specially contains hardware and utility network firewalls, the subscription section consists of security application and the assist segment includes customer help, hazard researchers, and protection consultants. The product phase (24.eight% of total income) grew 21.7% in FY2022, a good deal enhanced in comparison to FY2021 (5.3%) and the average growth rate (13.1%). in accordance with administration, this is because of

...increased demand for our new era of products, which contains customer transition from our legacy products. – Palo Alto Annual document

The subscription section (forty six.1% of total profits) grew essentially the most at 33.7%, which is beneath its standard of 38.eight%. The help phase (29.1% of total revenue) grew from 24.9% in FY2021 to 29.3% in 2022, however here is in accordance with the ordinary of 29%.

For our forecast of its FY2023 revenues, we summed its Q1 to Q3 outcomes for each and every section and forecasted its this fall revenues according to its past 6-12 months ordinary increase for each and every section. normal, we see the company proceed to develop decently for the full yr in line with its historic regular of 26%.

under, we assess the market share boom for Palo Alto and its rivals in the cybersecurity house.

business facts, Khaveen Investments

Cybersecurity income through enterprise ('CY')

2017

2018

2019

2020

2021

2022

regular

Palo Alto Networks

1,989

2,593

three,121

3,783

4,858

6,156

increase price % (YoY)

30.four%

20.3%

21.2%

28.4%

26.7%

25.four%

Fortinet (FTNT)

1,495

1,805

2,163

2,594

3,342

4,417

growth cost % (YoY)

20.7%

19.9%

19.9%

28.eight%

32.2%

24.3%

Cisco (CSCO)

2,228

2,554

3,032

3,277

three,476

three,835

increase fee % (YoY)

14.6%

18.7%

8.1%

6.1%

10.three%

11.6%

Symantec (now called Gen Digital)

4,752

4,768

2,493

2,752

3,107

increase cost % (YoY)

0.three%

-forty seven.7%

10.four%

12.9%

-6.0%

Checkpoint (CKPT)

1,855

1,917

1,995

2,065

2,167

2,330

boom expense % (YoY)

3.three%

four.1%

three.5%

4.9%

7.5%

4.7%

CrowdStrike (CRWD)

119

250

481

874

1,452

2,241

growth cost % (YoY)

a hundred and ten.3%

ninety two.7%

81.6%

66.0%

54.4%

eighty one.0%

Microsoft (MSFT)

437

625

842

1,one hundred fifteen

1,530

2,199

increase cost % (YoY)

forty two.9%

34.8%

32.4%

37.2%

forty three.8%

38.2%

IBM (IBM)

2,222

2,358

1,795

1,806

1,972

2,one hundred eighty

growth cost % (YoY)

6.1%

-23.9%

0.6%

9.2%

10.5%

0.5%

Okta (OKTA)

257

399

586

835

1,300

1,858

boom expense % (YoY)

55.7%

forty six.8%

42.5%

fifty five.7%

42.9%

48.7%

fashion Micro (OTCPK:TMICF)

1,321

1,464

1,520

1,686

1,654

1,705

growth rate % (YoY)

10.8%

three.9%

10.9%

-1.9%

3.1%

5.four%

Zscaler (ZS)

154

243

360

536

860

1,348

increase expense % (YoY)

fifty seven.5%

forty eight.2%

forty eight.eight%

60.four%

56.8%

fifty four.three%

Others

21,486

17,667

22,845

30,621

36,035

39,721

boom fee % (YoY)

-17.8%

29.three%

34.0%

17.7%

10.2%

14.7%

total

33,561

36,629

forty three,511

51,687

sixty one,399

seventy one,one hundred

growth cost % (YoY)

9.1%

18.8%

18.eight%

18.eight%

15.8%

16.three%

source: business records, Canalys, Khaveen Investments

We derived the market share through taking the protection revenues for each and every company divided by the size of the total cybersecurity market provided via Canalys, from 2017 to 2022. In 2017, Palo Alto had a 5.9% market share, in the back of Cisco (6.6%) and IBM (6.6%), however then had continual share boom and took the first spot in 2022 with an 8.7% market share. each Cisco and IBM continually lost market share, ending with 5.4% and 3.1% respectively. Fortinet grew from four.5% in 2017 to 6.2% in 2022 whereas Checkpoint misplaced market share, starting with 5.5% and ending with three.3%.

searching at the boom charges, Palo Alto has the highest 5-year usual growth rate (25.four%) amongst the top 5 companies when it comes to market share, with Fortinet (24.three%), Cisco (11.6%), Symantec (-6.0%) and Checkpoint (4.7%) following at the back of.

Cybersecurity Market Segments

section size ($ bln) (2022)

segment dimension (2027F)

CAGR

identity & entry management

14.7

27.9

13.7%

Vulnerability & security Analytics

13.9

29.5

16.2%

information security

four.2

12.three

23.9%

web & email protection

three.9

7.2

12.8%

community protection

22.9

42.three

13.0%

Endpoint safety

9.four

23.4

20.0%

built-in chance administration

10.9

21.2

14.three%

total

eighty.0

163.8

15.four%

supply: Canalys, Gartner, Market.Us, MarketsandMarkets (protection Analytics), MarketsandMarkets (records safety), MMR, Fortune business Insights, Radicati neighborhood, MarketsandMarkets (built-in chance management)

We derived our own cybersecurity market breakdown from Canalys and Gartner. We introduced the integrated chance management segment that was in Gartner’s breakdown to the Canalys breakdown as it became absent in Canalys and it represented Palo Alto’s possibility Intelligence & safety Consulting segment. We acquired the section measurement and CAGR for the cybersecurity segments from several research websites reminiscent of MarketsandMarkets, Fortune business Insights, and Market.us. Of the seven cybersecurity market segments, we recognized that community security is indeed the biggest section at $22.9 bln, followed by way of identification & access management ($14.7 bln) and Vulnerability & security Analytics ($13.9 bln). The optimum-growing segments are records safety (23.9%), Endpoint safety (20%), and Vulnerability & relaxed Analytics (sixteen.2%).

Palo Alto breaks down its cybersecurity features into 4 areas which are community safety (contains safety access carrier side), Cloud protection, security Operations, and danger Intelligence & safety Consulting. When looking at the company’s annual file, investor presentations and enterprise web page, we see that the products from these four areas cover all seven cybersecurity market segments.

however Palo Alto does not provide a revenue breakdown in terms of the 4 areas that it operates in, it pointed out inside its 2021 analyst day presentation that the network protection profits for FY21 become $3.7 bln, which represented 87% of total salary for FY21. for this reason, 87% of Palo Alto’s revenue comes from one market section (network security), whereas the ultimate 13% of income comes from the last six segments.

in keeping with Forbes, the business’s key competitors are Fortinet and Checkpoint within the network security market segment. also, Palo Alto and Fortinet lead network safety with over 20% market share each and every. The three opponents mentioned are additionally a part of the exact five groups via market share, which suggests network protection is the greatest and most sought-after market phase by way of security companies.

despite the fact network security has the greatest segment size, its CAGR is lessen than that of the entire CAGR. regardless of the low section growth, Palo Alto has still been able to benefit massive market share with network protection as it represents 87% of the enterprise’s earnings which is superb. in addition, Palo Alto’s precise two competitors, Fortinet and Cisco, offer products within the identical areas as Palo Alto when it comes to community safety, Cloud security, protection Operations, and threat Intelligence & protection Consulting. Yet, Palo Alto’s superb performance allowed it to gain market share and upward push to develop into the market chief. In conclusion, Palo Alto has the maximum market share within the cybersecurity market due to its dominance in network safety and we additional assess beneath whether the company has a competitive expertise over its competitors by inspecting both the hardware and application facet of the company.

during this part, we analyze the hardware aspect of Palo Alto’s company. in line with the annual file, the utility aspect has a big range of products, whereas hardware is made of its physical network Firewalls.

A community Firewall is a security equipment used to steer clear of or limit illegal entry to inner most networks through the use of policies defining the best site visitors allowed on the network; every other traffic searching for to join is blocked. – Palo Alto

in this section, we seem to be into the security hardware market and check if Palo Alto has a competitive talents in security hardware.

IDC, Khaveen Investments

The chart above shows the safety appliance market share unless 2022. Palo Alto had a 7% share in 2014 however grew to be the market leader with a 19.5% share in 2022. in spite of this, Cisco's share had been fairly reliable with 17.7% in 2022. a different huge gainer become Fortinet, which had a 5.8% share and climbed to a 16.7% market share. Checkpoint’s share declined from 12.7% to eight.5%.

From the chart above, the biggest gainers were Palo Alto and Fortinet, with a minor change of best between both. furthermore, we noted a research report published by Miercom that compares Palo Alto and Fortinet firewall hardware to show that Palo Alto is the advanced player in the safety hardware space. The check changed into run on three distinctive network firewall items from each business and “enterprise environments have been simulated and challenged with actual-world site visitors situations to supply an accurate evaluation of product performance”. The products chosen have been to replicate what purchasers, in small organizations and records facilities, can predict in terms of performance.

Miercom

overall, the leading goal was to discover the standard throughput and TCO (complete charge of ownership) per Mbps exam for the three sets of items. Throughput refers to the “quantity of statistics effectively transmitted over a connection”. TCO per protected Mbps refers to the cost-improvement value for each product which is derived by using taking complete can charge divided through typical throughput. relating to the results, Palo Alto’s network firewall hardware is way advanced compared to that of Fortinet’s because the typical throughput is more desirable for all three Palo Alto products and the can charge per Mbps is lower for all three Palo Alto products.

In conclusion, Palo Alto has a significant aggressive knowledge over its competitors within the safety hardware space as recognized in its community firewall hardware performance exam with Fortinet. Its aggressive abilities is additionally mirrored by its management place within the protection hardware market (19.5% market share).

in this area, we analyze Palo Alto’s network protection utility and how it compares with rivals during this space. When taking a look at Palo Alto’s network safety competitors, we identified that network Firewalls and at ease entry carrier area (SASE) have been common sub-segments among the groups.

To compare performance, we looked into the newest Gartner Magic Quadrants for each of these items to look if Palo Alto has an capabilities within the network protection utility house. besides the fact that children we could not gain a quadrant for SASE, we obtained the quadrants for SSE and SD-WAN which might be subsets of SASE. in line with Palo Alto, SSE “provides the security service aspects of a complete SASE (said “sassy”) strategy”. furthermore, Palo Alto brought up that SD-WAN...

...enables businesses to soundly join users, applications, and statistics throughout multiple areas while featuring enhanced efficiency, reliability, and scalability. - Palo Alto

it is primarily effective for companies that have far off work. in accordance with its recent salary, the enterprise’s administration highlighted its power because the handiest enterprise to be classified as a pacesetter in both SSE and SD-WAN through Gartner.

This apart from our management place in SD-WAN, makes us the best SASE dealer within the industry to be named a leader within the Gartner SSE and SD-WAN Magic Quadrants. - Nikesh Arora, Chairman & CEO

in the chart beneath, the primary quadrant to the left is the community firewall quadrant, the 2d one is the protection service part quadrant and the third is the SD-WAN quadrant. it'll even be noted that the community firewall quadrant contains hardware.

Gartner, Netskope, Palo Alto, Khaveen Investments

We compared a total of seven groups, with 4 being the biggest community security rivals (Palo Alto, Cisco, Fortinet, Checkpoint) and the ultimate three being organizations that appeared in additional than one quadrant (Juniper, Barracuda, Forcepoint). To obtain a ranking for every of the seven groups we derived our own scoring gadget. The scoring gadget is as follows:

Rank

ranking

components

1

one hundred

right appropriate quadrant, beyond black rectangular

2

70

appropriate appropriate quadrant, inside black square

3

50

appropriate left and bottom correct quadrants

4

30

backside left quadrant, within black rectangular

5

20

backside left quadrant, beyond black rectangular

0

10

not inside any quadrants

supply: Khaveen Investments

for this reason, the nearer the enterprise is to a rank of one, the bigger the rating and the more advantageous its efficiency for that product. the overall score for each and every enterprise is as follows:

company

network Firewall

SSE

SD-WAN

score

Palo Alto

2

2

2

210

Cisco

3

three

1

200

Fortinet

2

0

1

a hundred and seventy

Juniper (JNPR)

3

0

three

one hundred

Forcepoint

5

three

5

ninety

Barracuda

three

0

4

eighty

Checkpoint

2

0

0

70

supply: Gartner, Netskope, Palo Alto, Khaveen Investments

through searching at the quadrants, we believed that Palo Alto would be the market leader for network protection software, the rating equipment further supports our declare with Palo Alto having the maximum total rating (210) amongst the seven corporations. youngsters, Cisco has a complete score of 200 which is extraordinarily close to Palo Alto. both axes for the Gartner magic quadrants are "the means to execute" and "the completeness of imaginative and prescient". Having the maximum rank shows that average, Palo Alto is the foremost for these two metrics.

one of the approaches Gartner measures a company’s capability to execute is by way of its product capabilities, the monetary success of the particular product, the seller’s potential to adapt to market alterations, client journey, and the dealer’s potential to meet goals and commitments. Palo Alto’s means to execute is mirrored with the aid of looking at its consumer base with ninety five% of Fortune 100 organizations the usage of its products and functions. Its ability to adapt to market changes is mirrored by way of the increase in major product releases over the past three years, with 22 (FY20), 29 (FY21),forty nine (FY22), and already 35 in the first half of FY23.

additionally, Gartner measures a company’s completeness of vision through its market figuring out, advertising, and revenue strategy. Palo Alto’s market realizing is reflected by using 66% of shoppers the use of three or more of its network safety functions as of FY 21 There has also been a speedy upward push within the variety of accounts with a worth of $1 mln and above, going from 542 in FY19 to 921 in FY21.

In conclusion, Palo Alto has a competitive capabilities in network security application, albeit no longer large as a result of Cisco’s high score from Gartner’s magic quadrants. Palo Alto’s competitive talents is viewed with the aid of having ninety five% of Fortune one hundred organizations as customers, expanding variety of product releases, cross-promoting products to consumers and the boost in gigantic cost debts.

however Palo Alto has had rapid boom in market share over the last few years, it has above all been pushed through the community safety segment (25.4% 5-year typical). youngsters, the expected market increase of 13% is the 2d lowest growth cost amongst the six cybersecurity market segments. besides the fact that children Palo Alto has safety Operations (Endpoint safety) and cloud protection (a mix of a couple of cybersecurity market segments) that are high-increase segments expected to develop at 20% and 26.eight% respectively, the income share of those segments should boost if Palo Alto is to preserve its competitive advantage in the long term. nonetheless, Palo Alto is rapidly innovating in these segments which is viewed when evaluating its new product releases in FY21 compared to FY22. The product releases in the safety operations section improved from 9 to 18, the cloud security section rose from 6 to 13 whereas community protection had a minor increase from 14 to 18 new product releases. We agree with this suggests that Palo Alto is beginning to focal point on higher boom segments.

Palo Alto Valuation

FY2024F

revenue ($ mln)

8,842

P/S

8.50x

equity price ($ mln)

seventy five,159

Shares unbelievable ('mln')

305.9

fee target ($)

245.seventy four

present fee ($)

213.39

Upside

15.sixteen%

source: Palo Alto, Khaveen Investments

We forecasted Palo Alto’s revenues for FY2024 in accordance with its previous 6-year general increase expense for the product, subscription, and aid segments and derived complete revenues of $eight.eighty four bln. We valued the business with a P/S valuation as we forecasted it to have a high boom price above 20% for 2024. We primarily based the commonplace P/S ratio on nine cybersecurity businesses which might be eight.50x. The businesses that had been chosen are Symantec, Cisco, Okta, Checkpoint, Palo Alto, Microsoft, Zscaler, Fortinet, and CrowdStrike.

in quest of Alpha, Khaveen Investments

In our evaluation, we accompanied that Palo Alto Networks experienced a amazing raise in market share, positioning itself as the leading player in the cybersecurity market with the aid of the end of 2022. We attribute this success to the enterprise's aggressive side, exceptionally in the production of security hardware and software segments. notably, we identified that Palo Alto's network firewalls surpassed competitors, which we trust contributed to its dominance in security hardware. additionally, Palo Alto stood out as the sole chief in a variety of community safety utility sub-segments, the place we determined that it boasted the maximum average score among its rivals in this phase, which bills for 87% of its revenue in FY2021. These findings verify our belief in Palo Alto's aggressive knowledge over its competitors. based on our P/S valuation, we assign a buy ranking to the business, with a target cost of $245.70.